1. Consider a banking system with the following characteristics:

Currency in circulation: $250 million

Checkable Deposits: $500 million

Bank Reserves: $100 million

Reserve Requirement: 10%

1. Calculate the following. Make sure to show your work.
   1. Currency ratio
   2. Excess reserve ratio
   3. Monetary base
   4. Money multiplier
   5. M1 money supply
2. Repeat the calculations in part a above, but assuming that households now decide to hold more in currency in circulation: $300 million. What can we conclude about the effect that this change in the public’s preference for currency will have on the money supply? Briefly explain.

Answer rating: 100% (QA)

Part A Calculations with Original Data Currency Ratio Currency in circulation Checkable deposits 250 ... View the full answer