Calculate exact values for required reserves

Reference no: EM13183818

Suppose banks are required by law to hold 5% of their deposits in reserves and total deposits are $100 million, but banks choose to hold a total of 20% of their deposits in reserves because loans are riskier and potentially unprofitable.

A) Calculate exact values fpr required reserves, excess reserves, and total reserves in this case.

B) Calculate exact values for the RR and the money money multiplier MM.

C) SUppose the Federal Reserve adds another $1million in reserves through open market operations. Calculate the amount by which the money supply will change.

Reference no: EM13183818

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