Suppose that the Fed has currently set the reserve requirement at 10%.Further suppose that banks do not hold any excess reserves.
(a)How much money can the banking system support if it currently has $1,000,000 in reserves?
(b)If the Fed wanted to cause the money supply to expand,how could it use the reserve requirement to achieve its goal? Give an example.
(c)You realize that the cash-to-deposit ratio is 40%.Redo your answers to (a)and (b).Explain why the answers change by referring to the multiplier process.

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The Answer of Suppose that the Fed has currently set the reserve requirement at 10%.Further suppose that banks do not hold any excess reserves.
(a)How much money can the banking system support if it currently has $1,000,000 in reserves?
(b)If the Fed wanted to cause the money supply to expand,how could it use the reserve requirement to achieve its goal? Give an example.
(c)You realize that the cash-to-deposit ratio is 40%.Redo your answers to (a)and (b).Explain why the answers change by referring to the multiplier process.

Suppose That the Fed Has Currently Set the Reserve Requirement