Question

45 minutes. Basic calculators allowed. No other aids. Pencils must be dark enough to be visible on scans Choose the best option, Unless indicated otherwise, each question is worth 1 point. Show your work 1. Ecoland's total money supply is $8100 million, of which the public holds $100 million as cash. If the initial supply of money by the central bank was $500 million, commercial banks' in Ecoland have a reserve ratio of a. 0.01 b. 0.05 c. 0.06 d. 0.2

Answer 1

Answer is option b)

As money supply M = C + D

C = 100, M = 8100, So D = 800

Then as initial Money supply is Monetary Base , so

MB = 500

Then MB = C + R

Thus 500 = 100+ R

So R = 400

Thus as R = r* D

where r= reserves deposit ratio

so r = 400/8000 = .05