Question

the monetary policy of tazi is controlled by the country's central bank known as the bank of tazi. the local unit of currency is the tazian dollar. aggregate banking statistics show that collectively the banks of tazi hold $300 million of required reserves, $75 million of excess reserves, have issued $7,500 million of deposits, and hold $225 million of tazian treasury bonds. tazians prefer to use only demand deposits and so all money is on deposit at the bank. refer to scenario 29-1. suppose the bank of tazi loaned the banks of tazi $10 million. suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. by how much would the money supply change? question 10 options: $250 million $200 million $125 million $10 million

Answer 1

The increase in the money supply resulting from a $10 million loan from the Bank of Tazi would be determined by the reserve requirement ratio, but as the specific ratio is not provided, the exact change cannot be calculated accurately based on the answer options given.

Step-by-step explanation:

The increase in the money supply as a result of the central bank, the Bank of Tazi, loaning an additional $10 million to the banks of Tazi can be calculated using the money multiplier effect. Initially, with the added $10 million, the banks can lend out the portion of this money that is not required to be held in reserves. The reserve requirement dictates the minimum percentage of deposits banks must hold in reserves. The excess reserves can then be loaned out and will create additional deposits through the money creation process.

Assuming the reserve requirement and excess reserve ratio remain constant, the $10 million will expand through the money multiplier effect which is the reciprocal of the required reserve ratio (RRR). If the RRR is, for instance, 10%, the money multiplier would be 10 (1/0.1), meaning that the maximum potential increase in the money supply would be $10 million × 10 = $100 million. However, since the question does not provide the exact RRR, we cannot calculate the specific amount. None of the provided answer options would be correct based on this multiplier. It is essential to note that the actual increase may be less than this maximum if banks choose to hold more than the minimum required reserves or if individuals do not re-deposit the funds lent out by banks.