Calculate the simple money multiplier

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i) Assume all of the banks in Grapenation hold 16% reserve ratio. Calculate the simple money multiplier.

ii) Suppose that on a given day a customer deposits $2,800 into her bank. Based on the simple money multiplier calculated in part i), calculate the total amount that the money supply in the banking system will eventually increase to.

iii) If the reserve ratio increases to 20%, calculate the total amount that the money supply in the banking system will eventually increase to. Assume the amount of funds initially deposited by the customer remains at $2,800.

iv) Explain in detail how the money multiplier process works.

Reference no: EM132364788

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