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Sidana [21]
3 years ago
6

The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it hol

ds 5% of the deposits as reserves. What is the money multiplier in this economy?
Business
1 answer:
siniylev [52]3 years ago
6 0

Answer:

The answer is 20

Explanation:

The money multiplier show us how an initial deposit can lead to a higher final increase in the total money supply or it relates to the maximum amount of bank money that can be created, given a certain amount of money from central bank money.

Money multplier = 1 / reserve requirement

Reserve requirement is 5% of the deposits

Therefore, money multiplier is

1 / 0.05

20

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b. <em> </em>Additional paid-in capital is decreased

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The entry to record acquisition and retirement is:

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