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Economics

3. Suppose that the required reserve ratio is 0.12 for deposits and there are no excess reserves. Suppose also

that the total demand for currency is equal to 0.3 times deposits.

a. If total reserves are $40 billion, what is the level of the money supply?

b. By how much does the money supply change if the Fed increases the required reserve ratio to 0.20? Assume that

total reserves are unchanged at $40 billion.

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