Question

Given the above data about the U.S. economy (assume anything not listed is equal to zero):

• What is the money supply (M1)?
• What is the total amount (in $) of reserves that banks are required to keep?
• What is the total amount (in $) of reserves that banks can lend?

Please study the table below:

Category	Value
Total Reserves (private banks)	$100 Billion
Currency (firms, households)	$50 Billion
Value of Euros in the U.S. (private banks, firms, households)	$1 Billion
Gov’t bonds (private banks, firms, households)	$30 Billion
Demand deposits (private banks)	$1 Trillion
Certificates of Deposit, CDs (private banks)	$10 Billion
Reserve requirement on demand deposits	0.10

Answer 1

Ans. 1) money (M1) is the sum of currency in the circulation, demand deposits, and traveler's check

M1= $50billion + $1 trillion

= $1.05 trillion

2) Total reserve requirement = Reserve requirement on demand deposits x demand deposits

=0.10 x $1 trillion

= $100 billion

3) the total amount of reserve that a bank can lend depends upon the excess reserve but here total reserve is equal to required reserve i.e. $100 billion. Hence, Zero excess reserve means a bank lend nothing.