Question:

Economic-Bank Money Calculation problem-help plz thank you?

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Bank A has checkable deposits of $10,000 and reserves of $4,000. The required reserve ratio is 12.5 percent. Bank A can increase the money supply by a maximum of

$10,000.

$8,750.

$4,000.

$2,750.

$1,250.

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  1. $2,750.

    Required reserves = 10'000 * 0.125 = $1'250

    Excess reserves = 4'000 - 1'250 = $2'750

    But further effect will be higher through money-multiplier effect.

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