In the economy of Ozlandia, the monetary base is $500 billion. People hold 25% of their money in the form of currency and the remainder in bank deposits. Banks keep 15% of their deposits in reserve. Assume the velocity of money is constant.Based on the above information, answer the following questions.a. The currency-deposit ratio (cr) is . (Note: Round your answer to two decimal places.)b. The money multiplier (m) is
Question
In the economy of Ozlandia, the monetary base is $500 billion. People hold 25% of their money in the form of currency and the remainder in bank deposits. Banks keep 15% of their deposits in reserve. Assume the velocity of money is constant.Based on the above information, answer the following questions.a. The currency-deposit ratio (cr) is . (Note: Round your answer to two decimal places.)b. The money multiplier (m) is
Solution
The currency-deposit ratio (cr) is the proportion of total money that people hold in the form of currency. In Ozlandia, people hold 25% of their money in the form of currency. Therefore, the currency-deposit ratio (cr) is 0.25 or 25%.
The money multiplier (m) is calculated using the formula:
m = (1 + cr) / (cr + rr)
where cr is the currency-deposit ratio and rr is the reserve-deposit ratio. In Ozlandia, the reserve-deposit ratio is 15% or 0.15.
So, the money multiplier (m) is:
m = (1 + 0.25) / (0.25 + 0.15) = 1.25 / 0.4 = 3.125
Therefore, the money multiplier (m) in Ozlandia is 3.125.
Similar Questions
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) (a)Compute the reserve-deposit ratio, the currency-deposit ratio, the money multiplier, and the money supply.
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
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.
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
If the required reserve ratio is one-third, currency in circulation is $300 billion, checkable deposits are $900 billion, and there is no excess reserve, then the M1 money multiplier is A) 2.5. B) 2.8. C) 2.0. D) 0.67.
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.