Suppose reserves are $2 billion and the Fed increases reserves by 10% or $200 million when...

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Suppose reserves are $2 billion and the Fed increases reserves by 10% or $200 million when...

Suppose reserves are $2 billion and the Fed increases reserves by 10% or $200 million when bank reserve requirements are 8%. What is the predicted increase in bank deposits?


	in billion dollars.

business finance

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Answer 1

Answer #1

Predicted increase in the bank deposits will be calculated through the deposit multiplier which is the inverse of The Reserve requirement of the bank.

So we can calculate the Reserve requirement is 8% so deposit multiplier will be=[100-8%]= 92%

Hence the predicted increase in Bank deposit

=[92%×200]= 184 Millions

Predicted increase in bank deposits will be 184 Millions.

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Answer 2

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