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 that banks hold only30%of deposits as reserves, and lend70%of deposits. Right after Firstbank lends some of the deposits to borrowers, and before borrowers deposit the money from the loans, the money supply in the economy is

$8,000

None of the other answers

$4,000

$6,800

$2,800