Respuesta :
In order to calculate the money multiplier and reserves we need to do certain calculations by applying the following formula.
The change in money supply can be calculated by the following formula:
ΔMoney Supplier = Multiplier × ΔReserves
A) It is given that when the reserves are increased by $120 million then the money supply increases by $360 million.
So,
30 Million = Multiplier × 120 Million
⇒ Multiplier = 360 Million
120 Million
= 3
So, the value of the multiplier is 3.
B) If there is an increase in reserves by $30 million then,
ΔMoney Supply = 3 × 30 Million
= 90 Million
Therefore, When the reserves increase by $30 million then the money supply increases by $90 million.
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Correct Question - Suppose the Federal Reserve increases the amount of reserves by $120 million and the total money supply increases by $360 million.
a. What is the money multiplier?
b. Using the money multiplier from part a, how much will the money supply change if the Federal Reserve increases reserves by $30 million?
