You are given the following information: Reserves (R) in the banking system amount to $48 billion, of which $45.8 billion are required. Currency in the hands of the public amounts to $692.5 billion while checkable deposits amount to $650 billion. Calculate the money multiplier.
What will be an ideal response?
We can answer this one by using the following formula: m = 
We need to calculate C/D, this we can obtain by using information given in the question. C = $692.5 (we'll leave off the billions) and D = $650; so C/D = $692.5/$650 = 1.065. Next we'll calculate rD which can be found by rD = RR/D where RR represents the required reserves. rD = $45.8/$650 or 0.07; Next we can find rE by first determining the amount in excess reserves, ER. ER = R - RR or ER = $48- $45.8 = $2.2. rE = ER/D = $2.2/$650 = 0.0033. We have all of the values we need to solve for m. Substituting the values we obtained into the equation above, we find that m = 2.065/1.138 or m = 2.35.
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