Assume that the banking system has total reserves of Rs.150 billion. Assume also that required reserves are 20 percent of checking deposits and that banks hold no excess reserves and households hold no currency.

1. Calculate the money multiplier?
2. Calculate the money supply?

If the State Bank of Pakistan now raises required reserves to 25 percent of deposits,

3. Calculate the money multiplier?
4. What will be the effect on Reserves?  (Please write only one word “Increase”, “Decrease”, or “No Change” in the blank)
5. The amount of money supply will decline to  (Write a number in the box.

Answer rating: 100% (QA)

A The money multiplier is 1RRR102 5 Since the total reserves are Rs150 ... View the full answer