Question

The money supply is $6,000,000, currency held by the public is $2,000,000 and the reserve-deposits ratio is 0.25. Find deposits, bank reserves, the monetary base and the money multiplier. PART 2: In a different economy, vault cash is 1,000,000, deposits by depository institutions at the central bank are 4,000,000 the monetary base is 10,000,000 and bank deposits are 20,000,000. Find bank reserves, the money supply, and the money multplier

Answer 1

Please find the detailed answer below.

Step-by-step explanation:

PART 1:.

a. Deposit = money supply - currency held

$6,000,000 - $2,000,000

= $4,000,000

b. Bank reserve is reserve-deposit ratio x deposit

0.25 x $4,000,000

=$1,000,000

c. Monetary base = currency held + bank reserve

$2,000,000 + $1,000,000

=$3,000,000

d. Money multiplier= money supply/monetary base

$6,000,000/$3,000,000

=2

PART 2.

a. Bank reserve

$4,000,000 + $1,000,000

=$5,000,000

b. Money supply= currency held + bank deposit

Currency held= base - reserve

$10,000,000 - $5,000,000

= $5,000,000

Therefore money supply is

$5,000,000 + $20,000,000

=$25,000,000

c. Money multiplier= money supply/monetary base

$25,000,000/$10,000,000

=2.5