Question

Suppose the Federal Reserve establishes a reserve requirement of 21 percent and the monetary multiplier is 4.76. How much will the money supply change if excess reserves increase by $600 million

Answer 1

the change in the money supply is $2,856 million

Step-by-step explanation:

The computation of the change in the money supply is shown below:

Money supply = Money multiplier × excess multiplier

= 4.76 × $600 million

= $2,856 million

By multiplying the money multiplier with the excess multiplier we can get the change in the moeny supply

hence, the change in the money supply is $2,856 million