Assume a financial system has a monetary base of 25 million

Assume a financial system has a monetary base of $25 million. The required reserves ratio is 10 percent, and there are no leakages in the system. a. What is the size of the money multiplier? b. What will be the system\'s money supply?

Solution

Money multiplier =1/required reserve rate=1/0.10=10

Money supply =change in monetary value *money multiplier = $25*10=$250million