A community for students.
Here's the question you clicked on:
 0 viewing
anonymous
 one year ago
let r= .05 be the reserve rate. which of the following is the money multiplier?
anonymous
 one year ago
let r= .05 be the reserve rate. which of the following is the money multiplier?

This Question is Open

anonymous
 one year ago
Best ResponseYou've already chosen the best response.0what is the actual question ? I a a little confused?

anonymous
 one year ago
Best ResponseYou've already chosen the best response.0which of the following is the money multiplier? A. 10* 0.05 B. 1/0.05^2 C. 0.05^2 D. 1/0.05

anonymous
 one year ago
Best ResponseYou've already chosen the best response.0if the reserve rate is \(r=0.05\) then banks can lend out \(1r=0.95\); suppose you give A to a bank that then lends out 95% of that M, and then 95% of that lent amount is even further lent out, etc. giving a total of \(S=M+0.95M+\dots+(0.95)^nM+\dots\): $$S=M(1+0.95+0.95^2+\dots)\\0.95S=M(0.95+0.95^2+\dots)\\S0.95S=M(1)\\0.05S=M\\S=M/0.05=20M$$in other words, a reserve rate of \(r=0.05\) allows for an initial deposit of \(M\) to give rise to (strictly less than) *twenty* times that in terms of loans from the banking system. in particular, a reserve rate of \(r\) gives a geometric series \(S=M(1+(1r)+(1r)^2+\dots)=\frac{M}{1(1r)}=\frac{M}r\) so the money multiplier is the ratio of the total amount \(S\) of loan money made possible from an initial deposit \(M\), so \(S/M=\frac1r\)

IrishBoy123
 one year ago
Best ResponseYou've already chosen the best response.0you couldn't make this up :p http://www.ronpaul.com/20091114/endthefedconsideroutlawingfractionalreservebanking/
Ask your own question
Sign UpFind more explanations on OpenStudy
Your question is ready. Sign up for free to start getting answers.
spraguer
(Moderator)
5
→ View Detailed Profile
is replying to Can someone tell me what button the professor is hitting...
23
 Teamwork 19 Teammate
 Problem Solving 19 Hero
 Engagement 19 Mad Hatter
 You have blocked this person.
 ✔ You're a fan Checking fan status...
Thanks for being so helpful in mathematics. If you are getting quality help, make sure you spread the word about OpenStudy.