Answer:
Explanation:
here is the full question:
Suppose the reserve requirement is initially set at 10%. a. At a reserve requirement of 10%, what is the value of the money multiplier? b. If the reserve requirement is 10% and the Fed increases reserves by $20 billion, what is the total increase in the money supply? $ 20 billion c. Suppose the Fed raises the reserve requirement to 16%. What is the value of the money multiplier now? Instructions: Round your answer to 2 decimal places. d. Assume the reserve requirement is 16%. If the Fed increases reserves by $20 billion, what is the total increase in the money supply? $ 20 billion
Answer:
A.
Money multiplier = 1/reserve requirement = 1/10% = 10
B.
Total increase in the money supply = increase in reserve/reserve requirements
Total increase in the money supply = 20/10% = $200 billion
C.
Money multiplier = 1/reserve requirement = 1/16% = 6.25
D.
Total increase in the money supply = 20/16% = $125 billion
