question archive The central bank of Foxystan has set the reserve requirement at 10%
The central bank of Foxystan has set the reserve requirement at 10%
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The central bank of Foxystan has set the reserve requirement at 10%. If Dave makes a cash deposit of $5,000, and the bank carries zero excess reserves, by how much will the money supply increase?
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The calculated value of change in the money supply under the given scenario is $10,000 (increase).
The money multiplier is given by:
- = 1 / required reserve ratio
- =110%=110%
- = 10
The change in the money supply is given by:
- = Increase in deposits * money multiplier
- = $1,000 * 10
- = $10,000 (i.e. increase)
