Some economists have advocated replacing government deposit insurance with 100-percent- reserve banking. Under this plan, banks would hold all deposits as reserves. Deposit insurance would no longer be necessary, because banks would always have the reserves to meet customer withdrawals.

a. What would happen to the money supply (defined as currency and bank deposits) in the transition from fractional-reserve to 100 -percent-reserve, if this plan were implemented, holding other factors constant?
b. What will be the value of the money multiplier?

Question

Some economists have advocated replacing government deposit insurance with 100-percent- reserve banking. Under this plan, banks would hold all deposits as reserves. Deposit insurance would no longer be necessary, because banks would always have the reserves to meet customer withdrawals.

a. What would happen to the money supply (defined as currency and bank deposits) in the transition from fractional-reserve to 100 -percent-reserve, if this plan were implemented, holding other factors constant?
b. What will be the value of the money multiplier?

Quizplus · Accepted Answer

The Answer of Some economists have advocated replacing government deposit insurance with 100-percent- reserve banking. Under this plan, banks would hold all deposits as reserves. Deposit insurance would no longer be necessary, because banks would always have the reserves to meet customer withdrawals.

a. What would happen to the money supply (defined as currency and bank deposits) in the transition from fractional-reserve to 100 -percent-reserve, if this plan were implemented, holding other factors constant?
b. What will be the value of the money multiplier?

Some Economists Have Advocated Replacing Government Deposit Insurance with 100-Percent-