Answer to Question #166121 in Economics for Musonda

Question

A.in September 2020,the bank of Zambia announced a sight reduction in the statutory reserves ratio assuming from 10%to 9% .explain how this kind of reduction in the statutory reserve ratio would affect the .

1.size of the money multiplier ,

2.amount of excess reserves in the banking system and extent to which the system could expand the money supply thought the creation of checkable deposits via loans?

Answer 1

The monetary multiplier decreases.

With a decrease in interest, there is a revival in the financial services market, since working capital becomes more available, therefore, there is an increase in lending turnover, which causes a general improvement in the monetary system.