What is the spending multiplier here

Assignment Help Macroeconomics

Reference no: EM133336895

Topic: MUCHO DINERO BANK ASSETS LIABILITIES

Required Reserves---$10,000 Demand Deposits---$100,000

Excess Reserves----$5,000

Loans---$85,000

Question: Luis took the $5000 & bought a used car from Robert Smith. Robert Smith took the $5000 & paid for a cruise to the Bahamas. Emma Black, the tour director who arranged the trip, used half the money to pay the cruise operator & the other half was deposited in her checking account which happens to be in Mucho Dinero Bank.

1. What is the spending multiplier here?

2. How much "new money" was created?

3. After Emma makes her deposit, how much may the bank lend out assuming a 10% reserve rate?

Reference no: EM133336895

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