Effectiveness of an expansionary monetary policy

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1. Explain how banks can increase the money supply in a fractional reserve system given an initial injection of $100 Billion USD in deposits and a required reserve ratio of 10%.

2. Explain what effect would an increase in loan defaults, like during the mortgage crisis, can have upon (1)the money supply, (2) the bank's balance sheet, and (3) the effectiveness of an expansionary monetary policy given the circumstances as described in the previous question?

Reference no: EM132240738

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