Suppose the central bank increases the monetary base by 1 billion euro and the money multiplier is 10. What will be the increase in total money supply?

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Anne Gillian DueroLv10

28 Sep 2019

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Required Reserves (RR) = $80 billion

Required Reserve Ratio (r) = 0.1

a. What is the value of excess reserves in the banking system?

b. What is the value of deposits in the banking system?

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f. If the excess reserve ratio increases by 0.06, while the value of the required reserve ratio and currency to deposits ratio stay the same, what will be the value of the money multiplier? The value of the money supply?

g. If the Fed wishes to have the value of the money supply in the economy at the initial level (part c), how should it respond?

h. How much in government bonds should the Fed sell or buy?

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