Answer:
Money supply (M) = $1,570 Billion
Money multiplier (m) = 2.18
Excess reserve ratio (e) = 0.016
Explanation:
Suppose that the required reserve ratio is 9%, currency in circulation is $620 billion, the
amount of checkable deposits is $950 billion, and excess reserves are $15 billion.
(a)Calculate the money supply, the currency deposit ratio, the excess reserve ratio,
and the money multiplier.
Given:
r = required reserve ratio = 0.9
C = currency in circulation = $ 620 B
D = checkable deposits = $ 950 B
ER = excess reserves = $ 15 B
Money supply (M) = currency in circulation + checkable deposits = $620 B + $950 B = $1,570 Billion
Money multiplier (m) = [tex]\frac{1+c}{r+c+e}[/tex]
c = C/D = ($620 B)/($950 B) = 0.653
e = ER/D = ($15 B)/($950 B) = 0.016
Therefore Money multiplier (m) = [tex]\frac{1+c}{r+c+e}=\frac{1+0.653}{0.653+0.016+0.09}=\frac{1.653}{0.759} =2.18\\[/tex]
Excess reserve ratio (e) = ER/D = ($15 B)/($950 B) = 0.016
Suppose that the required reserve ratio is 9% and the currency in circulation is $620 billion.
a. The money supply is $1570 Billion.
b. The currency deposit ratio is 65.26%.
c. The excess reserves ratio is 1.58%.
d. The money multiplier is 2.18.
a. Money supply
Money supply= Currency in circulation + Checkable deposits.
Money supply= 620 Billion + 950 Billion
Money supply= $1570 Billion
b. Currency deposit ratio
Currency deposit ratio= Currency in circulation / Checkable deposits
Currency deposit ratio= 620 Billion / 950 Billion×100
Currency deposit ratio= 65.26%
c. Excess reserve ratio
Excess reserve ratio = Excess reserves / Checkable deposits
Excess reserve ratio = 15 Billion / 950 Billion×100
Excess reserve ratio =1.58%
d. Money Multipliers
Money Multipliers = (1+0.6526) / (0.09+0.0158+0.6526)
Money Multipliers=1.6526/0.7584
Money Multipliers=2.179
Money Multipliers=2.18 (Approximately)
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