Assume that the banking system has total reserves of $150 billion. Assume also that required reserves are 8 percent of checking deposits and that banks hold no excess reserves and households hold no currency. The money multiplier is . The money supply is billion. Suppose the Fed raises required reserves to 12.5 percent of deposits. The new money multiplier is , and the money supply to billion.

a.

b.

Explanation:

Given

Total Reserves = $150 billion

Required Reserves = 8%

Required

- Money Multiplier

- Money Supply

- Money Supply and Money Multiplier when Required Reserves is 12.5%

Money Multiplier is calculated as follows;

When required reserves = 8%

Convert percentage to fraction

Convert Divide to Multiplication

Money Supply is calculated as thus;

Calculating Money Supply and Money Multiplier when Required Reserves is 12.5%

Using the same formula used above

When required reserves = 12.5%

Convert percentage to fraction

Convert Divide to Multiplication

Money Supply is calculated as thus;

answer; (a) searching for information can be done quickly;

answer; 33,000;