H3. The Fed wants to change the reserve requirement ratio in order to increase the money supply (Which is currently $5,000 in demand deposits. There is no currency in this economy and banks hold no excess reserves.) by $500. The money multiplier is currently 5. What is the current reserve requirement ratio and how should the Fed change it? Carefully Explain.

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A:

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A: Answer is given below

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A: The formula for money multiplier: Money multiplier = 1 / Required Reserve Ratio

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