Suppose the monetary base is $100. If the currency-deposit ratio is 0.20 and the reserve-deposit ratio...

Question

Question

Suppose the monetary base is $100. If the currency-deposit ratio is 0.20 and the reserve-deposit ratio is 0.10, calculate the

Answer 1

Answer #1

Answer:

Monetary Base (MB) = $100

Currency deposit ratio (C) = 0.2

Reserve deposit ratio (r) = 0.1

Money Multiplier = [1+ C / r + C]

= [1+ 0.2 / 0.1 + 0.2]

= 1.2 / 0.3

= 4

Money Supply = Money Multiplier * Money Base

= 4* 100 = $400

Hence Money Multiplier = 4

Money Supply = $400

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Answer 2

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