ECONOMICS
MONEY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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banking multiplier times MPS
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banking multiplier times actual reserves
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banking multiplier times excess reserves
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banking multiplier times required reserves
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Detailed explanation-1: -The formula is 1/r, where r is the reserve ratio. In short, it is the reciprocal of r. When r is the reserve ratio for all the banks in an economy, then 1/r is the potential increase in the money supply. As the required reserve minimum goes down, the money multiplier goes up.
Detailed explanation-2: -A bank loans or invests its excess reserves to earn more interest. A one-dollar increase in the monetary base causes the money supply to increase by more than one dollar. The increase in the money supply is the money multiplier. Money is either currency held by the public or bank deposits: M =C+D.
Detailed explanation-3: -The money multiplier is then multiplied by the change in excess reserves to determine the total amount of M1 money supply created in the banking system.
Detailed explanation-4: -Alternatively we can use the deposit multiplier equation: TD = ID / crr. The initial change in deposit of $1000 will increase total deposits by $7333.33 given a reserve ratio of 12% (1000/. 12=8333.33).