Assume that currency (C) is $400 billion; chequable deposits (D) is $900 billion; and desired reserves ratio is 10%. There are unused excess reserves of $20 billion in the banking system.

1. Calculate the currency ratio and excess reserves ratio. (2 marks)
2. Calculate the money multiplier and the amount of total money supply. (4 marks)
3. Predict what happens to the money multiplier and the money supply: (3 marks)

1. If depositor behaviour causes currency ratio to decrease.
2. If the desired reserve ratio is decreased.
3. If due to economic condition, the amount of excess reserves increases.