?

AP® Macroeconomics

Free Version

Upgrade subject to access all content

Moderate

Calculating Changes to Money Supply

APMACR-P3VKPU

Iona Lottabucks deposits $5,000 cash into her bank account at her local branch bank. If the required reserve ratio is 10%, calculate the following:

I. The money multiplier.
II. The maximum amount of change to the M1 measure of the money supply that could be generated by Iona's deposit.

A

I. Money multiplier = 1.
II. Change to money supply = \$5,000.

B

I. Money multiplier = 5.
II. Change to money supply = \$20,000.

C

I. Money multiplier = 5.
II. Change to money supply = \$25,000.

D

I. Money multiplier = 10.
II. Change to money supply = \$45,000.

E

I. Money multiplier = 10.
II. Change to money supply = \$50,000.