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9 August, 11:35

Suppose an increase in the monetary base of $3 00,000 increases the quantity of money by $600,000. Calculate the money multiplier.

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  1. 9 August, 11:58
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    Calculate the money multiplier.

    MM : 2

    Explanation:

    The money multiplier is the number of times that the monetary base is used in the economy, it's calculated as follows:

    Money Supply = Monetary Base * Money Multiplier

    Money Multiplier = Money Supply / Monetary Base

    Money Multiplier = 600 / 300 = 2

    The Money Supply is affected by the reserve of money that the banks keeps as required reserves and excess reserves, so, total reserves, it means less money to spent or lent.
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