Suppose which the income supply is $1 trillion. Decision makers during the Fed confirm which they instruct to revoke the income supply by $100 billion, or by 10%. If the RRR is 0.05, what does the Fed need to do to lift out the programmed reduction? (Suppose the Fed can traffic down payment in the market)
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Total increase in money supply = Initial injection / Reserve Rate.
Going by this formula, 0.05 is basically a 20x multiplier for each dollar injected into the economy. Solve the simple algebra to determine that $5 billion reduction will work its way into $100 billion. The RR implies that all the banks are required to hold 5% of their total deposits ready for withdrawal, and the other 95% can be loaned out, which in turn will be deposited with other banks and loaned out further, giving a multiplier effect.