Macro 2009 FRQ #3- Money Multiplier

The video tutorial covers a macroeconomics exam question on banking and money creation. It explains reserve requirements, initial deposits, and how banks can loan out money. The concept of the money multiplier is introduced, showing how initial deposits can lead to a larger increase in demand deposits. The tutorial also discusses the impact of the Federal Reserve buying bonds, which increases the money supply. Finally, it examines how expansionary monetary policy affects real wages by increasing inflation and aggregate demand.

If a bank receives a $100 deposit and the reserve requirement is 20%, how much can the bank initially loan out?

• $80

• $20

• $120

• $100

What is the money multiplier if the reserve requirement is 20%?

• 2

• 10

• 4

• 5

How much does the total money supply increase when $100 is deposited, considering the money multiplier?

• $100

• $400

• $500

• $600

When the Federal Reserve buys $5,000,000 worth of bonds, what is the maximum increase in the money supply?

• $20,000,000

• $5,000,000

• $25,000,000

• $10,000,000

What happens to real wages when the Fed implements expansionary monetary policy?

• They increase

• They decrease

• They fluctuate unpredictably

• They remain unchanged