Author Question: Suppose the banking system as a whole has 600 billion in deposits and 66 billion in reserves, with a ... (Read 96 times)

skymedlock · **on:** Jun 30, 2018

Suppose the banking system as a whole has 600 billion in deposits and 66 billion in reserves, with a reserve ratio of 11 percent. What happens to the stock of money if the Fed lowers reserve requirements by changing the reserve ratio to 10 percent?

Question 2

Traditional Keynesians would argue that fluctuations in aggregate demand are closely tied to fluctuations in investment.
a. True
b. False
Indicate whether the statement is true or false

braelync · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Under the revised reserve requirements, banks are required to keep only 60 billion in reserves (600 billion 0.10), giving them 6 billion (66 billion - 60 billion) in excess reserves. Considering a money multiplier of 10, the move would permit an expansion in deposits of 60 billion, which represents a 10 percent increase in the stock of money, from 600 to 660 billion.

Answer to Question 2

True