Answer :
The maximum increase in the money supply = $38,82,346.87.
What is Change in Money Supply?
Use the formula to achieve the greatest change in the money supply. Change in Money Supply = Change in Reserves * Money Multiplier A decrease in the reserve ratio gives rise to a rise in income, which wants to put downward pressure on interest rates and, ultimately, leads to a rise in nominal GDP.
According to the given information:
excess reserves by $ 582061.
The reserve percentage is 15%.
maximum expansion of the currency supply?
Calculate the money multiplier
= 1/ reserve ratio
reserve ratio = 15% = 0.15
therefore the money multiplier = 1/0.15 = 6.6666 ≈ 6.67
We know that the:
Change in Money Supply = Change in Reserves * Money Multiplier
= 6.67 * 582061
= $38,82,346.87
The maximum increase in the money supply = $38,82,346.87.
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I understand that the question you are looking for is:
Suppose banks increase excess reserves by $ 582061 . if the reserve ratio is 15 percent, what is the maximum increase in the money supply? round your answer to the nearest dollar.