Question

Scenario 29-1. The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the Tazian dollar. Aggregate banking statistics show that collectively the banks of Tazi hold $300 million of required reserves, $75 million of excess reserves, have issued $7,500 million of deposits, and hold $225 million of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank. Refer to Scenario 29-1. Suppose the Bank of Tazi loaned the banks of Tazi $10 million. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply change

Answer 1

$200 million

Step-by-step explanation:

Required reserve = 300 million

Excess reserve = 75 million

Deposit = 7,500 million

In hold is 225 million

Loan amount is 10 million

Total reserve = m*Demand deposit

300 + 75 = m*7500

m = 375/7500

m = 0.05

The reserve requirement ratio is 0.05

Change in money supply = Loan amount/Reserve requirement ratio

Change in money supply = 10/0.05

Change in money supply = 200

So, the change in money supply is $200 million