Answer to Question #50277 in Macroeconomics for Pamala McCauley

Question #50277
To Control inflation by limiting bank loans, the peoples bank announced that it would raise the required reserve ratio for commercial banks from 21% to 21.5%. -china morning post 2011 Q: compare the required reserve ratio in china 2011 and the required reserve ration on checkable deposits in the united states today. Q: if the currency drain ratio in china and the united states is 10% of deposits, compare the money multipliers in the two countries.
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Expert's answer
2015-01-05T14:02:53-0500
The peoples bank announced that it would raise the required reserve ratio for commercial banks from 21% to 21.5%.
Q: The required reserve ratio in china 2011 is higher than the required reserve ratio on checkable deposits in the united states today.
Money multiplier m = 1/RR, where RR - required reserve ratio.
Q: "Currency Drain Ratio" is the ratio of cash to deposits, i.e. C/ D. If the currency drain ratio in china and the united states is 10% of deposits, so the money multiplier in China is less, then in United States.

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