Monetary Policy - Assignment #2

# Monetary Policy - Assignment #2 - Money...

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Money Creation/Destruction Lending by commercial banks creates money. If lending decreases, money is destroyed. This process depends upon banks lending out all of the money that they are allowed to lend and upon the people depositing all of the money. Review the fractional reserve banking system in the unit notes as well as the money multiplier. 1. Find the money multiplier for the following reserve requirements: a. 15% m = 6.667 b. 20% m = 5 c. 25% m = 4 d. 30% m = 3.333 e. 50% m = 2 2. Calculate the total amount of money that is created when there is a new initial deposit of \$10,000 for each of the reserve requirements: a. 15% the total amount of money created = \$8500 b. 20% the total amount of money created = \$8000 c. 25% the total amount of money created = \$7500 d. 30% the total amount of money created = \$7000 e. 50% the total amount of money created = \$5000 3. How much money can be created if the reserve requirement is 100%? Then no money is created. 4. How much money can be created if the reserve requirement is 0%?

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Monetary Policy - Assignment #2 - Money...

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