Back to Assignment Attempts: 5. The money multiplier Average: /17 In the folowin

Question

Back to Assignment Attempts: 5. The money multiplier Average: /17 In the folowing data table, calculate the amount of excess reserves and the monetary base and then use the table to answer the questions that fol ow. Value (Billions of Dollars) 650.00 300.00 31.00 29.00 Category Currency, C Deposits, D Required Reserves, RR Excess Reserves Monetary Base Use the previous data table to ill in the missing cells in the following table. (Hint: Round to the nearest hundreath) Ratio Currency Ratio, k Value Required Reserves Ratio, Excess Reserves Ratio, TY Money Supply Multiplier, MsM Based on your answers to the previous questions, the money supply is

Explanation / Answer

Excess Reserve = Total reserves - Required Reserves

here Total reserves is given by R = $31 ( in billion )

and Required Ratio = $29 (in billion)

Excess Reserves = 31 - 29 = $2 (in billion)

Monetary base is nothing but the part of money supply which is most liquid like curriency held by public and checkable deposits at bank so here Deposits + Currency = money base

Money base = D + C = 300 + 650 = $950 (in billion)

rr /100 * 300 = 29

rr = 9.666% = 0.0966 so nearest hundredth = 0.1 = 10%

so required reserve ratio = 10%

reserve ratio (r) = r% of 300 = 31

r/100 * 300 = 31

r = 10.333% = 0.103

so Excess Reserve Ratio = rex = 10.33% - 9.66% = 0.67% = 0.0067 = 0.00 (nearest hundredth)

Excess Reserve ratio = 0% (nearest hundredth)

MsM = 1/ 0.0966 = 10.3519

MsM = 10.35 (nearest hundredth)

Based on these answers the money supply is MsM * D + currency

= 10.35 * 300 + 650 ( money supply multiplier * deposits + currency in hands of public)

= $ 3755 ( in billion)

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