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Assume that the required reserve ratio is set at 0
Assume that the required reserve ratio is set at 0.04. What is the value of the money (deposit) multiplier? value of money inultiplier: 25 Suppose that a bank holds no excess reserves and receives a deposit from a customer of $250. How does this impact the money supply? incronse in money supply: S Which statement is a consequence of fractional reserve banking? Control of the required reserve ratio gives the Fed a tool that can be used to implement fiscal policy. Practional reserve banking ensures that private banks make a prati O Fractional reserve banking implies that private banks have a role in making changes to the money supply
Expert Solution
Reserve requirement = 0.04
Money multilplier = 1/Reserve requirement = 1/0.04 = 25
money multiplier is the multiple by which initial deposit increases to total deposits.
Initial deposit = $250
Total money supply = initial deposit x money multilplier
= 250 x 25
= $6250
Which statement is a consequence of fractional reserve banking?
Answer,: fractional reserve banking implies that private banks have a role in making changes in the money supply.
fractional reserve banking is a practice in which banks are required to maintain reserves out of the deposits they receive from the general public.
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