Suppose the reserve requirement is initially set at 10%.

Instructions: In parts a and c, round your answers to twodecimal places. In parts b and d, round your answers to onedecimal place.

a. At a reserve requirement of 10%, what is the value of the money multiplier?________

b. If the reserve requirement is 10% and the Fed increases reserves by $40 billion, what is the total increase in the money supply?

$ __________billion

c. Suppose the Fed raises the reserve requirement to 20%. What is the value of the money multiplier now? _________

d. Assume the reserve requirement is 20%. If the Fed increases reserves by $40 billion, what is the total increase in the money supply?

$ ____________billion

e. Raising the reserve requirement from 10% to 20% _________ (decreases/ increases) the money multiplier and ___________ (increases / decreases) the money supply.