22 Jul WHAT WOULD BE THE SIZE OF THE MONETARY MULTIPLIER BEFORE AND AFTER THE CHANGE IN THE RESERVE RATIO?
s reserve ratio is 10 percent and the economy is in Show more Refer to the table below and assume that the Feds reserve ratio is 10 percent and the economy is in a severe recession. Also suppose that the commercial banks are hoarding all excess reserves (not lending them out) because of their fear of loan defaults. Finally suppose that the Fed is highly concerned that the banks will suddenly lend out these excess reserves and possibly contribute to inflation once the economy begins to recover and confidence is restored. (1) Reserve Ratio (%) (2) Checkable Deposits (3) Actual Reserves (4) Required Reserves (5) Excess Reserves (3) (4) (6) Money-Creating Potential of Single Bank = (5) (7) Money-Creating Potential of Banking System (1) 10 $24000 9000 2400 $6600 $6600 66000 (2) 20 24000 9000 4800 4200 4200 21000 (3) 25 24000 9000 6000 3000 3000 12000 (4) 30 24000 9000 7200 1800 1800 6000 By how many percentage points would the Fed need to increase the reserve ratio to eliminate 54.55% of the excess reserves? percentage points What would be the size of the monetary multiplier before and after the change in the reserve ratio? Instructions: Round your answer to two decimal places. The monetary multiplier before the change = The monetary multiplier after the change = By how much would the lending potential of the banks decline as a result of the increase in the reserve ratio? Decline in lending potential = $ Show less
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