Question

Suppose​ that: r​ = required reserve ratio​ = 0.10 c ​= ​{C/D}​ = currency ratio​ = 0.30 e​ = ​{ER/D}​ = excess reserve ratio​ = 0.01 MB​ = the monetary base​ = ​$1 comma 000 billion Given that the formula for the money multiplier is (StartFraction 1 plus c Over r plus e plus c EndFraction )​, find the value for M​, the money supply. The money supply is

Answer 1

$3,170.73 billion

Step-by-step explanation:

Data provided in the question:

Required reserve ratio, r​ = 0.10

currency ratio​, c = 0.30

excess reserve ratio, e​ = 0.01

The monetary base​, MB = ​$1,000 billion

Formula for money multiplier, m =
`(1+c)/(r+e+c)`

on substituting the respective values, we get

m =
`(1+0.30)/(0.10+0.01+0.30)`

or

m =
`(1.30)/(0.41)`

or

m = 3.17073

Now,

Money supply, M = m × MB

or

M = 3.17073 × $1,000 billion

or

M = $3,170.73 billion