Suppose a closed economy is initially in the long run equilibrium. Suppose the monetary base of...

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Suppose a closed economy is initially in the long run equilibrium. Suppose the monetary base of...

Suppose a closed economy is initially in the long run equilibrium. Suppose the monetary base of this economy is $100 million, of which people carry $10 million in form of currency/cash.

3. Assuming the banks keep a reserve ratio of 5%, what is the money supply in this economy?

Suppose from now on that because of a virus, people become afraid of using currency and decide to deposit all the currency in banks, and carry money exclusively in the form of demand deposits.

4. What happens to the money supply?

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Answer 1

Answer #1

Given monetary base, MB cumency, c to find money supply $100 million $10 million required ratio = 5% ? As we know, MB = CAR R

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Answer 2

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