Question

Assets Liabilities + NetWorth
Reserves $60 Checkable Deposits $150
Loans 100 Stock Shares 135
Securities 25
Property 100
Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars. If commercial bankers decide to hold additional excess reserves equal to 7 percent of any newly acquired deposits, then the relevant monetary multiplier for this banking system will be:______.
a) 5.26
b) 4.76
c) 6.66
d) 8.33

Answer 1

Answer: a) 5.26

Explanation:

Given: Assets                            Liabilities + NetWorth

Reserves $60                          Checkable Deposits $150

Loans 100                                 Stock Shares 135

Securities 25

Property 100

Required reserve ratio = 12 percent

Additional excess reserves = 7 percent

Then, monetary multiplier = (1/ (Required reserve ratio+Additional excess reserves))

= (1/(12%+7%))

= 1/19%

= 1/ 0.19   [19%=0.19]

≈ 5.26

Hence, the correct option is a) 5.26.