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Answer :
Final answer:
The maximum increase in the money supply, given a $575,913 increase in excess reserves and a reserve ratio of 13 percent, would be approximately $4,428,277.97, calculated using the money multiplier formula.
Explanation:
If banks increase excess reserves by $575,913 and the reserve ratio is 13 percent, the maximum increase in the money supply can be calculated using the money multiplier formula. The money multiplier is the reciprocal of the reserve ratio, so in this case, it would be 1 divided by 0.13, which equals approximately 7.69. Therefore, to find the maximum increase in the money supply, the excess reserves are multiplied by the money multiplier.
Total Change in the M1 Money Supply = Excess Reserves × Money Multiplier
Total Change in the M1 Money Supply = $575,913 × 7.69
The maximum potential increase in the money supply would be approximately $4,428,277.97.
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Final answer:
The maximum increase in the money supply is $4,429,330.77.
Explanation:
To calculate the maximum increase in the money supply, we need to use the formula:
Maximum Increase in Money Supply = Excess Reserves / Reserve Ratio
In this case, the given excess reserves are $575913 and the reserve ratio is 13 percent.
First, we need to convert the reserve ratio from a percentage to a decimal. To do this, we divide the percentage by 100:
Reserve Ratio = 13% / 100 = 0.13
Now, we can substitute the values into the formula:
Maximum Increase in Money Supply = $575913 / 0.13
Using a calculator, we can calculate the maximum increase in the money supply:
Maximum Increase in Money Supply = $4,429,330.77
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