State the Formula for the Deposit Multiplier in Terms of the Required

question 69

Essay

State the formula for the deposit multiplier in terms of the required reserve ratio. Give two reasons this formula overstates the value of the money multiplier.

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Definitions:

Commercial Draft

A written order from one party to another, directing the payment of a specified sum of money to a third party, often used in trade.

Banker's Acceptance

A short-term debt instrument issued by a company but guaranteed by a bank, commonly used in international trade.

Trade Acceptance

A written promise or a draft by one party, the seller, to another, the buyer, to pay a specified sum of money at a future date.

Sight Draft

A financial instrument that is payable on demand when presented to the drawee.