Question
2. In a country, suppose total deposits ( D ) is $75 billion. Consumers (the public) hold 25% of their money as currency (cash). Commercial
2. In a country, suppose total deposits (D) is $75 billion. Consumers (the public) hold 25% of their money as currency (cash). Commercial banks hold a third of total deposits as reserves. What are the values of reserve-deposit ratio (rr), currency-deposit ratio (cr)? How much is the money multiplier (m)? How much is the monetary base (B)? How much is money supply (M)?
3. Following above, suppose in one year, the public projects a coming financial crisis would collapse the banking system. People now hold 50% their money as currency. If the central bank does not intervene, what is the value of this new money multiplier? How much is money supply after such a change?
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