Question

The COMPLEX financial system has these relationships: the ratio of reserves to total deposits is 12 percent and the ratio of noncheckable deposits to checkable deposits is 40 percent. In addition, currency held by the nonbank public amounts to 15 percent of checkable deposits. The ratio of government deposits to checkable deposits is 8 percent, and the monetary base is $300 million.
a. Determine the size of the M1 money multiplier and the size of the money supply.
b. If the ratio of currency in circulation to checkable deposits were to drop to 13 percent, what would be the impact on the money supply?
c. If the ratio of government deposits to checkable deposits increases to 10 percent while the other ratios remained the same, what would be the impact on the money supply?
d. What would happen to the money supply if the reserve requirement increased to 14 percent while noncheckable deposits to checkable deposits fell to 35 percent? Assume the other ratios remain as originally stated.


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  • CreatedMarch 27, 2015
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