In what direction has the money supply changed

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1. Explain why a single commercial bank can safely lend only an amount equal to its excess reserves but the commercial banking system as a whole can lend by a multiple of its excess reserves. What is the monetary multiplier, and how does it relate to the reserve ratio?

2. Assume that Jones deposits $500 in currency into her checkable-deposit account in First National Bank. A halfhour later Smith obtains a loan for $750 at this bank. By how much and in what direction has the money supply changed? Explain.

Reference no: EM131243789

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