Define the Money Multiplier. What does it indicate? The number by which a change in the monetary base. The money multiplier is the reciprocal of the reserve ratio. When the reserve ratio changes from 20% to 10%, the money multiplier increases from 5 to 10. If Bank A currently has $750,000 in total reserves and $5 million in deposits, and the required reserve ratio is 10%, how much more can the bank lend out?

The common stock and debt of northern sludge are valued at $65 million and $35 million, respectively. investors currently require a return of 15.9% on the common stock and a return of 7.8% on the debt. if northern sludge issues an additional $14 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? assume that the change in capital structure does not affect the interest rate on northern’s debt and that there are no taxes.