Money Circulates around the economy. So it expands, if one person had $100 they may spend $95 and that Person may then spend $90.25 . . . and so on. That same $100 has already 'grown' into $285.25 with just a couple transactions and people keeping 5%. The amount it could grow to if we counted every transaction in the circle, and if everyone kept 5% would be 100/.05 = $2,000. In class we calculate the growth amount and then multiplied by the initial amount. 1/RR = 1/.05 = 20 20 * 100 = $2,000 So if we had $10,000 in an area and the Bank had a Reserve Requirement of 10% the initial $10,000 would grow into?

Money Circulates around the economy. So it expands, if one person had $100 they may spend $95 and that Person may then spend $90.25 . . . and so on. That same $100 has already 'grown' into $285.25 with just a couple transactions and people keeping 5%. The amount it could grow to if we counted every transaction in the circle, and if everyone kept 5% would be 100/.05 = $2,000. In class we calculate the growth amount and then multiplied by the initial amount. 1/RR = 1/.05 = 20 20 * 100 = $2,000 So if we had $10,000 in an area and the Bank had a Reserve Requirement of 10% the initial $10,000 would grow into?

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter6: Saving And Investing

Section: Chapter Questions

Problem 26AA

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