11MoneyChptr

# 11MoneyChptr - 6 If you take \$100 that you held as currency...

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Unformatted text preview: 6. If you take \$100 that you held as currency and put it into the banking system, then the total amount of deposits in the banking system increases by \$1,000, because a reserve ratio of 10% means the money multiplier is 1/.10 = 10. Thus, the money supply increases by \$900, because deposits increase by \$1,000 but currency declines by \$100. 7. With a required reserve ratio of 10%, the money multiplier could be as high as 1/.10 = 10, if banks hold no excess reserves and people do not keep some additional currency. So the maximum increase in the money supply from a \$10 million open-market purchase is \$100 million. The smallest possible increase is \$10 million if all of the money is held by banks as excess reserves. 8. a. If the required reserve ratio is 5%, then First National Bank's required reserves are \$500,000 x .05 = \$25,000. Because the bank’s total reserves are \$100,000, it has excess\$500,000 x ....
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## This note was uploaded on 02/13/2012 for the course ECO 202 taught by Professor Normmiller during the Spring '08 term at Miami University.

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11MoneyChptr - 6 If you take \$100 that you held as currency...

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