Question

Question 8 (16 points) The commercial banking system has excess reserves of $10,000. Then new loans of $70,000 are subsequently made, and the system ends up just meeting its reserve requirements. The required reserve ratio must be %. Your Answer: Answer Question 9 (4 points) The benefits of economic growth are while the costs of economic growth are a) more current consumption; less future consumption b) increased output per person; too small for concern increased output per person; less future consumption d) increased output per person; the consumption sacrificed in exchange for capital formation Question 10 (4 points) e

Answer 1

8. Excess reserve = $ 10,000

New loan = $ 70,000

The money multiplier is determined using the following formula

$Money \ Multiplier =\frac{1}{Required \ Reserve}$

New loan = Excess Reserve × Money Multiplier

Money Multiplier = New loan / Excess Reserve

MM = 70,000 / 10,000= 7

$Money \ Multiplier =\frac{1}{Required \ Reserve} = 7$

$Required \ Reserve= \frac{1}{7} \approx 0.1429$

Required reserve = 14.29%

9. increased output per person; the consumption sacrificed in exchange for capital formation.