In a multi-bank system, after customers deposited additional $720 billion in the bank, M1 money supply...
In a multi-bank system, after customers deposited additional $720 billion in the bank, M1 money supply increased by $2,160$2,160 billion. Calculate the value of loans issued by the bank during the first round of loans. Assume that all the excess reserves are loaned out. Enter your answer in billions in the box below.
Homework Answers
Answer -
Money multiplier = 2160/720
= 3
Money multiplier = 1/ reserve ratio
3 = 1 / reserve ratio
Reserve ratio = 1/3
Deposits = $ 720 billion
Required reserve = 720*1/3
= $ 240 billion
Excess reserves = 720-240
= $ 480 billion
Since all of the excess reserves were loaned out , loan issued in first round
= $ 480 billion
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