The economy of Elmendyn contains 900 $1 bills. A. If people hold all money as cu

Question

The economy of Elmendyn contains 900 $1 bills.

A. If people hold all money as currency, the quantity of money is.

B. If people hold all money as demand deposits and banks maintain 100 percent reserves, the quantity of money is.

C. If people hold equal amounts of currency and demand deposits and banks maintain 100 percent reserves, the quantity of money is.

D. If people hold all money as demand deposits and banks maintain a reserve ratio of 12.5 percent, the quantity of money is.

E. If people hold equal amounts of currency and demand deposits and banks maintain a reserve ratio of 12.5 percent, the quantity of money is.

Explanation / Answer

A. If people hold all money as currency, the quantity of money is: 900 x $1 = $900

B. If people hold all the money as deposits and banks maintain 100% reserves, the quantity of money is: 0% x 900 = $0

C. If people equal amounts of currency and demand deposits and bank maintains 100% reserves, the quantity of money is: 450 + 0% x 450 = $450

D. If people hold all money as demand deposits and banks maintain a reserve ratio of 12.5 percent, the quantity of money is: 87.5% x 900 = $787.5

E. If people hold equal amounts of currency and demand deposits and banks maintain a reserve ratio of 12.5 percent, the quantity of money is: $450 + 87.5% x 450 = $843.75

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