a. The quantity of the money supply (M1) is $1100 billion.
b. The required reserves is $80 billion.
c. The excess reserves is $50 billion.
d. The money multiplier is 10.
e. The unused lending capacity is $400 billion.
a. M1 refers to money supply that is composed of currency, demand deposits and other liquid deposits such as savings deposits.
Money supply (M1) = Transactions deposits + Cash held by public
= $800 + $300
= $1100 billion
b. The required reserve refers to the minimum cash the bank can keep on hand.
Required reserves = Reserve requirement × Deposits
= 0.10 × $800
= $80 billion
c. Excess reserves means funds held at the bank that exceed the Reserve's minimum requirement.
Excess reserves = Total reserves - Required reserves
= $120 - $80
= $40 billion
d. The money multiplier is the ratio that represents the increase in the money supply generated by each additional unit of reserves held by a central bank.
Money multiplier = 1/Required reserve ratio
= 1/0.10
= 10
e. Unused lending capacity refers to the portion of a financial institution's available funds or credit limit that has not been utilized by borrowers.
Unused lending capacity =
= Excess reserves × Money multiplier
= $40 × 10
= $400 billion
The full question is:
Assume that the following data describe the condition of the banking system. Use this information to answer five questions. Total reserves Transactions deposits Cash held by public Reserve requirement $120 billion $800 billion $300 billion 0.10 a. How large is the money supply (M1)? $ billion b. How large are required reserves? $ billion c. How large are excess reserves? $ billion d. What is the money multiplier? e. How much is the unused lending capacity? billion