Question

If banks hold no excess reserves, checkable deposits total $1.5 billion, currency totals $400 million, and the required reserve ratio is 10%, then the monetary base equals

a. $550 million.
b. $1.54 billion.
c. $1.9 billion
d. $15 billion.

Answer 1

monetary base = $550 million

so correct option is a. $550 million.

Step-by-step explanation:

given data

checkable deposits total = $1.5 billion

currency totals = $400 million

required reserve ratio = 10%

to find out

monetary base

solution

we get here monetary base that is express as

monetary base = Currency total + bank reserves .......1

here bank reserves = 10% of $1.5 billion

bank reserves = $150 million

so put value in equation 1 we get monetary base

monetary base = $400 million + 150 million

monetary base = $550 million

so correct option is a. $550 million.