In a specific economy, the central bank reports a monetary base of 8 million dollars. The currency-deposit ratio (cr) in this economy is 0.2. If the money supply in this economy is 24 million dollars, what is the reserve-deposit ratio?A.18%B.19%C.20%D.22%
Question
In a specific economy, the central bank reports a monetary base of 8 million dollars. The currency-deposit ratio (cr) in this economy is 0.2. If the money supply in this economy is 24 million dollars, what is the reserve-deposit ratio?A.18%B.19%C.20%D.22%
Solution
The reserve-deposit ratio (rr) can be calculated using the formula for the money multiplier in the money supply model:
M = m * B
where M is the money supply, m is the money multiplier, and B is the monetary base. The money multiplier is given by the formula:
m = 1 + cr / rr + cr
Given that M = 8 million, and cr = 0.2, we can substitute these values into the formulas to solve for rr.
First, calculate the money multiplier:
m = M / B = 8 million = 3
Then, substitute m = 3 and cr = 0.2 into the formula for the money multiplier and solve for rr:
3 = 1 + 0.2 / rr + 0.2
Solving this equation gives rr = 0.2 or 20%.
Therefore, the reserve-deposit ratio is 20%, so the correct answer is C. 20%.
Similar Questions
If there is an economy’s monetary base is $1000 m, and the reserve-deposit ratio (rr) is 0.35. suppose people hod 1/5 of their money as currency and deposit 4/5 at banks. Then what are the currency -deposit ratio and money supply?A.0.2 2180B.0.25 2270C. 0.8 1570D.0.25 454
The currency-deposit ratio is 0.8 and the currency is $ 800 billion, and the reserve-deposit ratio is 0.2. what is monetary base?A.1000 billionB.1200 billionC.1500 billionD.800 billion
In the country of Examnia, the monetary base is B = $1000, and the currency-deposit ratio is 0.2. The money supply is M = $3000. Calculate the reserve-deposit ratio
In the economy of Panicia, the monetary base is $2000. People hold a third of their money in the form of currency (and thus two-thirds as bank deposits). Banks hold a third of their deposits in reserve. What are the reserve-deposit ratio, the currency-deposit ratio, the money multiplier, and the money supply?This is a multi answer question. You can select one or more options as the answer.A.the reserve-deposit ratio (rr)=1/3; the currency-deposit ratio (cr) =1/2; the money multiplier = 1.8.; the money supply = 3600.B.the reserve-deposit ratio (rr)=2/3; the currency-deposit ratio (cr) =1/2; the money multiplier = 1.8.; the money supply = 1800.C.the reserve-deposit ratio (rr)=1/3; the currency-deposit ratio (cr) =1/3; the money multiplier = 1.8.; the money supply = 3600.D.the reserve-deposit ratio (rr)=2/3; the currency-deposit ratio (cr) =1/3; the money multiplier = 1.8.; the money supply = 1800.
If the monetary base of a country is $7,000. People hold half of their money in the form of currency, and commercial banks hold a quarter of their deposits in reserve. Context: long run, closed economy(use the econ 211 knowledge) If people distrust commercial banks and withdraw deposits, and the central bank does not respond, what is the new money supply?
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.