Question

Suppose that currency in circulation (C) is $50 billion, the amount of checkable deposits (D) is $500 billion, and excess reserves (ER) are $20 billion. Also, the required reserve ratio (rD) on checkable deposits is 5%. Calculate the money supply (M), the required reserves (RR), the total reserves (R), the monetary base (MB), the currency-to-deposit ratio (c), the excess reserve-todeposit ratio (e), and the money multiplier (m)

Answer 1

1) money supply(M) = currency + checkable deposit = 50 + 500 = 550 billion

2) Required reserve (RR) = 5% of $500billion = 25billion

3) the total reserves (R) = RR + ER = 25 + 20 = 45 billion

4) monetary base (MB) = Currency + Total reserves = 50 + 45 = 95 billion

5) currency-to-deposit ratio (c) = Currency / deposit = 50/500 = 0.1

6)  the excess reserve-todeposit ratio (e) = ER / D = 20/500 = 0.04

7) money multiplier (m) = ( 1+c) / ( rD +e+c) = (1+0.1) / ( 0.05+ 0.04+0.01) = 11