Calculate the money multiplier

Assignment 3 Question-Chapters: 15, 16, 17 & 18: [5 Marks]

Q1: You take $500 that you held as currency and put it into the banking system. The reserve ratio is

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equal to 20%.                                                                                             [1.5 Marks]


  1. Calculate the money multiplier.
  2. By how much will increase the total amount of deposits in the banking system?
  3. By how much will increase the money supply?





Q2: At the beginning of 2018, a town has 152,000 employed people and 8000 unemployed people.

The remaining 40,000 people in the town are not in the labor force.                  [1.5 Marks]


Based on these​ numbers:


  1. Calculate the​ town’s unemployment rate:
  2. Calculate the​ town’s labor force participation rate:
  3. Calculate Suppose that 10,000 people decide to join the labor force. Of these 10,000 people 7,800 find jobs. What is the unemployment rate at the end of 2018?



Q3: Suppose that the T-account for First National Bank is as follows: –                     [2 Marks]



The First National Bank
Assets Liabilities
Reserves             $100,000 Deposits          $500,000
Loans                   400,000  





  1. If the Fed requires banks to hold 5 percent of deposits as reserves, how much in excess reserves does First National Bank now hold?


  1. Assume that all other banks hold only the required amount of reserves. If First National decides to reduce its reserves to only the required amount, by how much would the economy’s money supply increase?


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