-If you had $1000, which interest rate (4% or 1%) would encourage you to save your money in a bank rather than spend it? Why?
Suppose the RRR is 0.10. Use the money multiplier formula to determine by how a $3,000 checking
account deposit will increase the money supply.
To determine which interest rate would encourage saving rather than spending, we need to calculate the interest earned from each rate and compare them.
Let's start with the 4% interest rate. To calculate the interest earned, you can use the formula: Interest = Principal * Rate * Time, where the principal is the initial amount you have, the rate is the annual interest rate as a decimal, and the time is the number of years.
So, with a $1000 principal and a 4% interest rate, the interest earned after one year would be: Interest = $1000 * 0.04 * 1 = $40.
Now let's calculate the interest earned with the 1% interest rate. Using the same formula, the interest earned after one year would be: Interest = $1000 * 0.01 * 1 = $10.
Comparing the two results, we can see that with a 4% interest rate, you would earn $40 in one year, while with a 1% interest rate, you would earn only $10.
Having a higher interest rate of 4% would encourage you to save your money in a bank because it would provide a higher return on your savings. By saving your money instead of spending it, you would be able to earn more interest over time and grow your savings further.