Increase in money supply, When a central bank increases

Increase in money supply

Reference no: EM13914252

When a central bank increases bank reserves by $1, the money supply rises by more than $1. The amount of extra money created when the central bank increases bank reserves by $1 is called the money multiplier.

In an imaginary economy, the initial money supply is $1100, of which $550 is currency held by the public. The desired reserve-deposit ratio is 0.4.

Find the increase in money supply associated with increases in bank reserves of $1, $5, and $10.

Reference no: EM13914252

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