Question

. Suppose that the required reserve ratio is 9%, currency in circulation is $620 billion, the amount of checkable deposits is $950 billion, and excess reserves are $15 billion

Answer 1

Answer:

Money supply (M) = $1,570 Billion

Money multiplier (m) = 2.18

Excess reserve ratio (e) = 0.016

Explanation:

Suppose that the required reserve ratio is 9%, currency in circulation is $620 billion, the

amount of checkable deposits is $950 billion, and excess reserves are $15 billion.

(a)Calculate the money supply, the currency deposit ratio, the excess reserve ratio,

and the money multiplier.

Given:

r = required reserve ratio = 0.9

C = currency in circulation = $ 620 B

D = checkable deposits = $ 950 B

ER = excess reserves = $ 15 B

Money supply (M) = currency in circulation  + checkable deposits = $620 B + $950 B = $1,570 Billion

Money multiplier (m) = $\frac{1+c}{r+c+e}$

c = C/D = ($620 B)/($950 B) = 0.653

e = ER/D = ($15 B)/($950 B) = 0.016

Therefore Money multiplier (m) = $\frac{1+c}{r+c+e}=\frac{1+0.653}{0.653+0.016+0.09}=\frac{1.653}{0.759} =2.18$

Excess reserve ratio (e) = ER/D = ($15 B)/($950 B) = 0.016