saving deposits saving deposits saving deposits 6. The monetary multiplier Aa Aa
ID: 1107612 • Letter: S
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saving deposits saving deposits saving deposits 6. The monetary multiplier Aa Aa L Suppose that Beth flinds $10,000 in cash in a mattress that was given to her and decides to deposit all of the money into her chequing account at a bank. If the single bank had a desired reserve ratio of 15%, its excess reserves would holds and the banking system as a whole has a desired reserve ratio of 15%, the banking system will supply.) and it could loan out If the assumption of the multiple-deposit expansion process the money supply by . (Hint: Currency held by the public Is counted in the money Which of the following assumptions is necessary for the money multiplier to calculate the change in demand deposits by the money supply expansion process? O Borrowers use the entire loan amount to pay others, who will deposit all of the funds in a chequing account. O People's marginal propensity to consume does not rise with income. Borrower default rates are stable. If the previous correct assumption did not hold, the change in the money supply would be previous correct answer because: than the If borrower default rates were not stable, then the money creation process would be disrupted 1f people's marginal propensity to consume rose with income, they would save less removing money from the financial system. If people kept some of the new money as cash rather than depositing it in another chequing account, this cash could not, in turn, become a bank loan. OExplanation / Answer
If desired reserve ratio is 15 per cent, then excess reserves would be = (100-15) per cent of 10,000 = $8,500. It could loan out $8,500.
The banking system will increase money supply by 1 / reserve ratio * 10,000 = $66,6666.67
Answer 1:
The two assumptions necessary for this to work are - 1. Borrowers use the entire loan amount to pay others who will deposit all the funds in a checking account.
2. People's MPC does not rise with income
Answer 2:
Less, because Option B and Option C are correct.
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