Answered: 2.4. If the required reserve ratio for…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2.4. If the required reserve ratio for the Third National Bank is 10 percent, what is the monetary multiplier? Recall, to calculate you have to use the formula: Monetary Multiplier = 1=Required Reserve Ratio . The money multiplier is a key measure in banking that helps to predict the money supply that will be available to drive economic growth. As you can see from the formula, if the reserve requirement is 20%, the money multiplier will be I divided by 0.2, which is 5. We can then use the money multiplier multiplied by the excess reserves determine the maximum checkable-deposit creation that will be provided by the new money entering the system. 2.5. If the monetary multiplier is 4. what is the required reserve ratio? Describe how and identify by what amount the Third National Bank can create money in the economy . Recall that generally, bank creates money in a typical economy by making loans. The Fed sets the reserve requirement (the required reserve ratio) that directly affects the amount of money creation .

Definition Definition Increase in the amount of goods and services produced by a country in a given period of time compared to an earlier period. Economic growth is generally coupled with a rise in national income or the purchasing power of individuals. It is often measured in terms of the increase in a country's gross domestic product (GDP), or the overall monetary value of all the complete or final services and goods that a country can produce within its domestic boundaries in a specific period.

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