Question

A bank's actual reserve ratio is the percentage of total deposits a bank actually holds on to. It is made up of the percentage they are required to hold on to, known as the required reserve ratio, plus any extra they choose to hold on to. Suppose Dave's bank has an actual reserve ratio of 12%, and his bank makes a loan to Darlene based on the funds from Dave's deposit. How much does the money supply increase as a result of this second step

Answer 1

Answer:

The increase in the money supply will be "833333.33".

Explanation:

• The real reserve ratio of either a lender seems to be the proportion of overall reserves another bank currently occupies onto another.
• It consists of the proportion they become required to secure forward with, referred to that as the reserve requirement expected, including whatever extra those who happen to retain onto this.

According to the question,

The multiplier will be:

⇒ $\frac{1}{RRR}$

⇒ $\frac{100}{12}$

⇒ $\frac{25}{3}$

So the increase will be:

⇒ $100000\times \frac{25}{3}$

⇒ $833333.33$