Question
Answer Part B please

2. Suppose that currency in circulation is $600 billion, the amount of chequable deposits is $900 billion, excess reserves ar
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Answer #1

Solution:-

(A)Money supply = Currency in circulation + Checkable deposits.

                                  = 600 Billion + 900 Billion

                                  = $ 1500 Billion.

Currency deposit ratio = Currency in circulation / Checkable deposits.

                                            = 600 Billion / 900 Billion

                                            = 0.6667 or 66.67 % (approx.)

Excess reserve ratio = Excess reserves / Checkable deposits.

                                        = 15 Billion / 900 Billion

                                        = 0.0167 i.e., 1.67 % (approx.)

Monetary Base = Currency + Total reserve

                              = $600 Billion + $15 Billion + $900 Billion * 10%

                              = $705 Billion

Money Multipliers = Money Supply / Monetary Base

                                    = $1500 Billion / $705 Billion

                                    = 2.13

Money supply

$ 1500 Billion.

Currency deposit ratio

0.6667 or 66.67 % (approx.)

Required reserve ratio

0.0278 i.e., 2.78 % (approx.)

Money Multiplier

2.13 (approx.)

Question b). Solution:- Increase in money supply = 1400 Billion * 2.13 = $ 2982 Billion.

Conclusion:- Money supply increases / rises by $ 2982 billion.

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