Question

If total deposits = 500. And reserve requirement ratio (r) is 10% and total reserves = 70 & total currency = 25.

42. What are total Excess Reserves?

43. What is e?

44. what is c?

45. What is the MB?

Answer 1

42)

Gere required reserve ratio(r) = 10% = 0.10 and thus Required reserves = r*Deposit = 0.1*500 = 50

Total reserves = Total excess reserves + required reserves

=> 70 = 50 + Total excess reserves

=> Total excess reserves = 20

43)

e = excess reserve ratio = Total excess reserves/Total deposit = 20/500 = 0.04

Hence, e = 0.04 or 4%

44)

c = currency to deposit ratio = currency/Total deposit = 25/500 = 0.05

Hence, c = 0.05 or 5%

45)

MB = Monetary Base = Currency + Total Deposit

=> MB = 25 + 500

=> MB = 525