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Money Multiplier Mechanics Money Multiplier Mechanics Answers to in class questions and more questions

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Bank and Fed Balance Sheet Bank and Fed Balance Sheet Federal Reserve System Federal Reserve System Banking System Banking System Assets Liabilities Assets Liabilities SEC 275 Bank Deposit 125 RES CD 1000 DL 50 FRN 200 RR 100 Loans from FED 50 ER* 25 Loans and Securities 925 Also •No Vault cash (or all FRN is currency held by public) •No unwanted excess reserves (ER* is desired excess reserves) Eco 301 - Fall 2011
Formulas Formulas Formulas: M=CD + CUR MB = RES + CUR m=(1+c)/(r CD + e + c) M=m(MB N + DL) M=m( MB N + DL) m=M/MB CD=(1/(r CD + e + c)) MB CD=(1/(r CD + e +c) ) MB MB n =MB-DL RR = r CD CD RR = r CD CD r CD = RR/CD CUR = cCD CUR = c CD c=CUR/CD ER*= eCD ER*=e CD e=ER*/CD Eco 301 - Fall 2011

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Compute Compute i. The reserve requirement ratio (r CD ) ______10% or 0.10___ ii. The currency ratio (c) ______20% or 0.2___ iii. The desired excess reserve Ratio (e) ______2.5% or 0.025__ iv. The monetary base (MB) ______\$325_______ v.
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