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Consider the model of financial intermediation seen in Chapter 3. Money is denoted by M , currency by C and demand deposits by D .

Consider the model of financial intermediation seen in Chapter 3. Money is denoted byM, currency byCand demand deposits byD. Currency in the economy is initially $4,000, so C = $4,000. Suppose households deposit all of their currency in "Firstbank".

Suppose banks hold 100% of deposits as reserves. Then the money supply is

$2,800

None of the other answers

$4,000

$1,200

$5,800

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