Question

If the rr is equal to 25%, what is the value of the money multiplier (simple deposit multiplier)? if $35,000 in cash is taken from under your mattress and deposited into a bank, predict the impact on the money supply in the economy.

Answer 1

The money supply in the economy is  $1025302.6

Bank loans or invests its excess reserves to earn greater hobby. A one-dollar boom inside the financial base reasons the money deliver to boom through more than one dollar. The growth inside the money supply is the cash multiplier.

The money multiplier is the primary can used to calculate what a change in reserves could do to the money supply. The method for the cash multiplier is 1/r where r is the reserve ratio. once one has calculated the money multiplier, they might then multiply that through the exchange in reserves.

The money multiplier is critical in macroeconomics because it determines the cash supply, which affects interest charges. it is also critical in banking because it impacts economic coverage and the steadiness of the banking region.

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