what is important for the money multiplier to work?
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A. Define money multiplier.
B. What is the value of the money multiplier in a system of 100% reserve banking?
C. What is the value of the money multiplier in a system of fractional reserve banking, if all money is held in the form of deposits?
D. Why is the money multiplier higher under fractional banking than under 100% reserve banking?
If the reserve requirement (rr) is 0.2, what is the simple deposit multiplier? If, in addition, the currency deposit ratio (c) is 0.05 and the excess reserve ratio (e) is 0.15, what is the money multiplier? Explain why the money multiplier differs from the simple deposit multiplier.
Assume that: C = Currency in circulation; D = demand deposit; E = excess reserves; R = required reserve.
a) Write an expression for the money multiplier?
b) Show the effect of increasing the required reserve ratio on the multiplier and consequently money supply?
c) Show the effect of increasing the excess reserve ratio on the multiplier and consequently money supply?
d) Show the effect of increasing the currency to deposit ratio on the multiplier and consequently money supply?