Answer to Question #278321 in Macroeconomics for Chan

Question

Imagine that the banking system received additional deposits of $100 million and that all the individual banks wish to retain their current liquidity ratio of 20%.What is the size of the bank multiplier?

Answer 1

Solution:

Bank multiplier = 1 $\div$ Reserve ratio = 1 $\div$ 20% = 5

 

The size of the bank multiplier = 5 times