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2 May, 01:56

Assume that $1.6 million is deposited into a bank with a reserve requirement of 5 percent. Instructions: Round your answer to two decimal places. a. What is the money supply as a result

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  1. 2 May, 05:06
    0
    money supply = 32 million

    Explanation:

    The reserve requirement is the money banks keep in their vaults against the deposited money.

    The supply of money is affected by reserves and the supply of money can be increased if we lower the reserve requirements.

    The money supply is calculated as

    money supply = deposits*money multiplier

    Where money multiplier is (1 / % of reserve requirement)

    money supply = deposits * (1 / % of reserve requirement)

    money supply = 1600000 * (1/0.05)

    money supply = 32000000

    money supply = 32 million
  2. 2 May, 05:28
    0
    Answer: $32 million

    Explanation:

    Money supply = deposits * (1 / % of reserve requirement)

    Hence:

    1600000 * (1/0.05) = 32,000,000
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