Question

Based on the information in the table, if the public had not decided to hold more currency in 1932, but the actions of the federal reserve and the banks remained the same, the money supply at the end of 1932 would have been :

currency held by public (in billions) reserve-deposit ratio bank reserves (in billions) money supply (in billions)
december 1931 $ 4.59 0.095 $ 3.11 $ 37.3
december 1932 $ 4.82 0.109 $ 3.18 $ 34.0

multiple choice
a. $33.8 billion
b. $34.2 billion
c. $35.9 billion
d. $36.1 billion

Answer 1

If the public had retained the same amount of currency in 1932 as in 1931, with the other factors remaining the same, the total money supply at the end of 1932 would have been approximately $33.8 billion. Option A is correct.

Step-by-step explanation:

Based on the information given, to calculate what the money supply would have been at the end of 1932 without the public deciding to hold more currency, we can assume the currency held by the public stays constant at December 1931 levels. Given the December 1932 reserve-deposit ratio of 0.109 and bank reserves of $3.18 billion, we can calculate the potential money supply.

The formula used is: Money Supply = Bank Reserves / Reserve-Deposit Ratio. Using the December 1931 currency value of $4.59 billion:

Money Supply = $3.18 billion / 0.109 = $29.17 billion

This $29.17 billion would then be added to the currency held by the public to find the total money supply:

Total Money Supply = $29.17 billion + $4.59 billion = $33.76 billion

Since $33.76 billion is closest to the provided option A, this suggests that the money supply would have been $33.8 billion.