Question

Suppose banks increase excess reserves by $ 471845 . If the reserve ratio is 12 percent, what is the maximum increase in the money supply

Answer 1

$3,932,025.94

Step-by-step explanation:

Multiplier = 1 / rr

Multiplier = 1 / Reserve ratio

Multiplier = 1 / 0.12

Multiplier = 8.3333

Increase in money supply = Multiplier * Increase in excess reserves

Increase in money supply = 8.3333 * $471,845

Increase in money supply = $3,932,025.94

So, the maximum increase in the money supply is $3,932,025.94.