What is the size of the money multiplier

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Reference no: EM131570816

The following questions are from, Fin 100.

1. Assume a financial system has a monetary base (MB) of $25 million. The required reserves ratio is 10 percent, and no leakages are in the system.

  • What is the size of the money multiplier (m)?
  • What will be the system's money supply?

2. Assume a bank has $5 million in deposits and $1 million in vault cash. If the bank holds $1 million in excess reserves and the required reserves ratio is 8 percent, what level of deposits are being held?

3. Assume that Banc One receives a primary deposit of $1 million. The bank must keep reserves of 20 percent against its deposits. Prepare a simple balance sheet of assets and liabilities for Banc One immediately after the deposit is received.

Reference no: EM131570816

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