Assume the following: i. The public holds no currency. ii. The ratio of reserves to deposits (0) is 0.10. iii. The demand for money is given by Md = $Y(0.82-2.7i). The monetary base (H) is $67 billion, and nominal income (SY) is $5.5 trillion. In the absence of any currency holdings by the public, the demand for money (M) is equivalent to the demand for checkable deposits, and the demand for central bank money (H) is equivalent to the demand for reserves. Given the ratio of reserves to deposits (0 = 0.10), the supply of central bank money (H= $67 billion), and the fact that equilibrium prevails in both the market for central bank money (H = H) and the money market (M = MS), it can be deduced that the overall supply of money is $billion. (Enter your response as an integer.)

Assume the following: i. The public holds no currency. ii. The ratio of reserves to deposits (0) is 0.10. iii. The demand for money is given by Md = $Y(0.82-2.7i). The monetary base (H) is $67 billion, and nominal income (SY) is $5.5 trillion. In the absence of any currency holdings by the public, the demand for money (M) is equivalent to the demand for checkable deposits, and the demand for central bank money (H) is equivalent to the demand for reserves. Given the ratio of reserves to deposits (0 = 0.10), the supply of central bank money (H= $67 billion), and the fact that equilibrium prevails in both the market for central bank money (H = H) and the money market (M = MS), it can be deduced that the overall supply of money is $billion. (Enter your response as an integer.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.

Question

Assume the following:
i. The public holds no currency.
ii. The ratio of reserves to deposits (0) is 0.10.
iii. The demand for money is given by M = $Y(0.82-2.7i).
The monetary base (H) is $67 billion, and nominal income ($Y) is $5.5 trillion.
In the absence of any currency holdings by the public, the demand for money (Mo) is
equivalent to the demand for checkable deposits, and the demand for central bank
money (H) is equivalent to the demand for reserves.
Given the ratio of reserves to deposits (0 = 0.10), the supply of central bank money (H =
$67 billion), and the fact that equilibrium prevails in both the market for central bank
money (H = H) and the money market (M = MS), it can be deduced that the overall
supply of money is $ billion. (Enter your response as an integer.)

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