Assume the situation from question 13 , except now assume that banks hold a ratio of \(0.5 \%\) of excess reserves to deposits and the public keeps \(20 \%\) of its liquid assets in the form of cash. Under these conditions, what is the money multiplier? Explain why this value of the multiplier is so much lower than the multiplier from question 13.

Data from Question 13

Suppose the Fed were to inject \(\$ 100\) million of reserves in to the banking system by an open market purchase of Treasury bills. If the required reserve ratio were \(10 \%\), what is the maximum increase in \(M_{1}\) that the new reserves would generate? Assume that banks make all the loans their reserves allow, that firms and individuals keep all their liquid assets in depository accounts, and no money is in the form of currency.