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Answer each of the following questions. (L03) a. Bank reserves are 100, the public holds 200 in currency, and the desired res

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a) Reserve deposit ratio is 25% so deposits are 100/25% = 400. Then money supply is currency + deposits = 200 + 400 = 600

b) Reserves = currency and money supply is 500. Reserves / deposits or currency / deposits = 25%. Now money supply = currency + deposits and so 500 = deposits * 25% + deposits. This gives deposits = 400 and currency held by public = reserves = 25% of 400 = 100.

c) deposits = money supply - currency = 1250 - 250 = 1000. Reserves = 100. Reserve deposit ratio = 100/1000 = 10%.

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