Assume that banks are able to lend out 85 cents on every dollar deposited, and a bank receives $9,000 in deposits.
a. What is the reserve requirement?
b. Find the money multipler.
C. How much money is 'created' from the $9,000 deposit?
d. If the reserve requirement is altered to 10%, what will this do to the money supply?
e. What does this do to equilibrium interest rate in the market for loanable funds? (Show on a graph.)
f. What is another way the Federal Reserve will achieve the same outcome in Part D?