Question 4 of 8 ncorrect Map sapling learning Suppose that the central bank has

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Question 4 of 8 ncorrect Map sapling learning Suppose that the central bank has increased the money supply such that there are an additional $80665 in excess reserves. If the reserve ratio is 15 percent, what is the maximum the money supply could increase? Round your answer to the nearest dollar. Number 80665 Previous 3 Give Up & View Solution Try Again Next E Explanation The money multiplier shows the amount by which each additional dollar in reserves will increase the money supply. There is a simple relationship between the reserve ratio and the money multiplier. What is it? Also, don't forget to express the reserve ratio as a decimal in your calculations.

Explanation / Answer

(a)

Money multiplier = 1 / Reserve Ratio = 1 / 0.15

So, Increase in total money supply = Excess reserves x Money Multiplier

= $80,665 x 1 / 0.15 = $537,767

(b)

As shown in part (a), Money multiplier = 1 / Reserve Ratio

= 1 / 0.15 = 6.67

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