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Total reserves (private banks) $100 billion, Currency (firms, households) $50 billion, Value of Euros in the...

Total reserves (private banks) $100 billion, Currency (firms, households) $50 billion, Value of Euros in the U.S. (private banks, firms, households) $1 billion; Gov't bonds (private banks, firms, households) $30 billion; demand deposits (Private banks) $1 trillion; Certificates of deposit, CDs (private banks) $10 billion; Reserve requirement on demand deposits 0.10.

Question: what is the money supply (M1) and the amount of reserves that banks are required to keep?

Thanks,

Kiki

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Answer #1

Ans. Money supply( M1) is the sum of currency in circulation, demand deposits, and traveler's checks

1) Money supply (M1) = $50 billion + $ 1 trillion

= $ 1.05 trillion

2) the amount of reserve required = reserve requirement on the demand deposits x demand deposits

= 0.10 X $ 1trillion

= $ 100 billion

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