Assume REQ Is 0 $\frac{\mathrm{ER}}{\mathrm{TDD}}$ , Equals 0 $\frac{\mathrm{C}}{\mathrm{TDD}}$ = 033 with These Assumptions, What Is the Money Multiplier

question 34

Essay

Assume REQ is 0.15 and the behavior of banks and depositors responds to interest rates such that banks do not make all the loans they can but rather want to hold 1% of their deposits (TDD) in excess reserves (ER), with the result that the ratio, $\frac{\mathrm{ER}}{\mathrm{TDD}}$

, equals 0.01. Also assume that the interest rate is at the level where the public will hold only 75% in checkable deposits (rather than a 100% maximum) and thus 25% in cash or currency (C) such that the ratio $\frac{\mathrm{C}}{\mathrm{TDD}}$
= 0.33. With these assumptions, what is the money multiplier?

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