ECONOMICS
MONEY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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$10, 000
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$9, 000
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$1, 000
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$0
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Detailed explanation-1: -the money multiplier is 1 f . If the Federal Reserve raises the monetary base by one dollar, then the money supply rises by 1/f dollars. For example, if the reserve requirement is f = . 10, then the money supply rises by ten dollars, and one says that the money multiplier is ten.
Detailed explanation-2: -If the required reserve ratio is 10 percent this means that banks must hold 10 percent of their deposits as required reserves.
Detailed explanation-3: -A reserve requirement of 20 percent means a bank must have $1, 000 of reserves if its checkable deposits are: $5, 000. The amount that a commercial bank can lend is determined by its: excess reserves.
Detailed explanation-4: -The required reserve ratio can be calculated by simply dividing the amount of money a bank is required to hold in reserve by the amount of money it has on deposit. For example, if a bank has $10 million in deposits and $500, 000 are required to be held in reserve, then the required reserve ratio would be 1/20 or 5%.