ASSIGNMENT #9

Question 3 The Central Bank is deciding on what reserve requirement would be appropriate for the country. The table below illustrates a few numbers. Reserve Requirement Potential Money Multiplier Actual Money Multiplier 50.0% 33.3% 25.0% 20.0% 10.0% a) What is the difference between the potential money multiplier and the actual money multiplier? b) Calculate the potential money multipliers. c) Assuming that banks hold 4% more reserves than what is legally required, individuals hold 3% more cash instead of deposits at the bank, businesses hold 5% more cash instead of deposits at the bank, and foreign entities hold 1% more cash, calculate the actual money multipliers