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Assume the Banking System Has $100 Billion in Demand Deposits

question 94

Essay

Assume the banking system has $100 billion in demand deposits and $10 billion in reserves. In addition, assume that the required reserve ratio is 5%. Answer the following questions:
a. How much excess reserves are in this system?
b. What is the value of the money multiplier?
c. What is the maximum amount of change in demand deposit creation that could take place if the banking system lent out all of its excess reserves.

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Definitions:

Relative Luminance

The brightness of an object compared to the brightness of a similarly illuminated object that appears to be white or highly reflective.

Perceptual Set

A mental predisposition or readiness to perceive certain aspects of available sensory data and ignore others.

Mental Predisposition

An individual's inclination or tendency to think, feel, or behave in a particular way due to a combination of genetic, environmental, and psychological factors.

Perceptual Set

A tendency to perceive or notice some aspects of the available sensory data while ignoring others, influenced by expectations and prior knowledge.

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