Question

Suppose the required reserve ratio is 11%, currency in circulation is $200 billion, the amount of...

Suppose the required reserve ratio is 11%, currency in circulation is $200 billion, the amount of checkable deposits is $250 billion, and excess reserves are $16 billion.

a. Calculate the money supply. _________________

b. Calculate the currency/deposit ratio. _________________

c. Calculate the excess reserve ratio. _________________

d. Calculate the money multiplier. _________________

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Homework Answers

Answer #1

Solution-

1. Money Supply = Cash + Deposits.

Given- Cash = Currency = $200 billion & Deposits= $250 billion.

Money Supply = $200 + $250 = $450.

The Money Supply is $450.

2. Currency Deposite Ratio = Cash / Deposits.

Currency Deposite Ratio = 200 / 250 = 0.8 & Ratio is 0.8 x 100 = 80%

Currency Deposite Ratio is 80%.

3. Excess Reserve Ratio = Excess Reserve / Deposits.

Excess Reserve Ratio = 16 / 250 = 0.064 & Ratio is 0.064 x 100 = 6.4%

Excess Reserve Ratio is 6.4%.

4. Money Multiplier = 1 / Required Reserve Ratio.

Money Multiplier = 1 / 11 = 0.09.

Money Multiplier is 0.09.

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