In Macroland, currency held by the public is 2,000 econs, bank reserves are 300 econs, and the required reserve/deposit ratio is 15 percent. If the Central Bank lowers the required reserve/deposit ratio making the new desired ratio equal to 10 percent, then the money supply in Macroland will to econs, assuming that the public does not wish to change the amount of currency it holds.

Increase, 5,000

Explanation:

Currency held by public = 2,000

Reserves held by banks = 300

Reserve requirement is 15%

2,000*15% = 300. Bank keep 300 out of 2,000 which raise reserves from 300 to 600. Money supply in economy is (600 / Money multiplier) = (600 / 0.15) = 4,000.

If reserve requirement is 10%

2,000*10% = 200. Bank keep 200 out of 2,000 which raise reserves from 300 to 500. Money supply in economy is (500 / Money multiplier) = (500 / 0.1) = 5,000.

Conclusion: The money supply in Macroland will increase to 5,000.

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