Answer to Question #75824 in Macroeconomics for Alicia

Question

Suppose the banking system as a whole has $6800 billion in deposits and $45 billion in reserves, with a reserve ratio of 10 percent. What happens to the stock of money if the Central Bank of The Bahamas increases reserve requirements by changing the reserve ratio to 5 percent?

Answer 1

Then, with a reserve rate of 5 percent, the amount of reserves will decrease to 45/2 = 22.5 – because when reserve rate of 10 percent reserve is 45, then when 5 percent – 22.5, so the amount of deposits in the banking system will be greater, namely 6800 + 22.5 = 6822.5