2) Refer to the information provided in Scenario below to answer the following q

Question

2) Refer to the information provided in Scenario below to answer the following questions: SCENARIO: The following table shows the changes in deposits, reserves, and loans of 4 banks as a result of a $100,000 initial deposit in Bank No. 1. Assume all banks are loaned up. Bank No. 1 Bank No. 2 Bank No.3 Bank No.4 ew Deposit $100,000.00 $90,000.00 $81,000.00 $72, 900.00 Required Reserve $10,000.00 $9,000.00 $8,100.00 $7,290.00 Loans $90,000.00 $81,000.00 $72,900.00 $65,610.00 a) What is the required reserve ratio? b) What is the money multiplier in this economy? Special Assessment

Explanation / Answer

a) Reserve ratio = reserves*100 / deposits

rr= 10000*100 / 100000 = 10% or 0.1

it is same for all banks and is equal to 10

b) money multiplier= 1/rr = 1/0.1 = 10

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