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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
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.
- Calculate the currency ratio and excess reserves ratio. (2 marks)
- Calculate the money multiplier and the amount of total money supply. (4 marks)
- Predict what happens to the money multiplier and the money supply: (3 marks)
- If depositor behaviour causes currency ratio to decrease.
- If the desired reserve ratio is decreased.
- If due to economic condition, the amount of excess reserves increases.
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