Question

1. If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is billion. 2. If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the currency-deposit ratio is...

Answer 1

Ans:

1)

Money supply = $8000 billion

Explanation

Money Multiplier = 1 / Required reserve ratio

= 1 / 0.1

= 10

Money supply = Deposits * Money multiplier

= $800 billion * 10

= $8000 billion

2)

currency -deposits ratio = 50%

Explanation

currency -deposits ratio = ( currency / deposits ) * 100

= ($400 billion / $800 billion) * 100

= 50%