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4 August, 04:24

If the Fed supply 20 billion dollars into the commercial banking system, how much more money the commercial banks create and supply?

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  1. 4 August, 04:51
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    Depends on the reserve ratio, which in turn determines the money multiplier.

    Explanation:

    The money multiplier formula = 1 / reserve ratio

    For example, if the reserve ratio is 10%, the money multiplier will be 10. If the reserve ratio is 20%, the money multiplier will be 5.

    To calculate the total effect of a $20 billion inflow, you must multiply that amount by the money multiplier:

    E. g. $20 billion x 10 = $200 billion, or $20 billion x 5 = $100 billion
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