Consider the following data: Currency Required reserves Deposits Excess reserves $100 billion $360 billion $1200 billion $40 billion Calculate the values for currency to deposit ratio, the ratio of total reserves to deposits, the monetary base, the money multiplier, and the money supply

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## Monetary Economics: Understanding Key Financial Metrics

### Given Data for Analysis:

| **Financial Parameter** | **Value**          |
|-------------------------|--------------------|
| Currency                | $100 billion       |
| Required Reserves       | $360 billion       |
| Deposits                | $1200 billion      |
| Excess Reserves         | $40 billion        |

### Objective

Calculate the following financial metrics:
1. **Currency to Deposit Ratio**
2. **Ratio of Total Reserves to Deposits**
3. **Monetary Base**
4. **Money Multiplier**
5. **Money Supply**

### Explanation of Metrics

1. **Currency to Deposit Ratio (c):**
   The currency to deposit ratio is calculated by dividing the total currency by the total deposits.
   \[
   c = \frac{\text{Currency}}{\text{Deposits}} = \frac{100 \text{ billion}}{1200 \text{ billion}} = 0.0833
   \]

2. **Ratio of Total Reserves to Deposits (r):**
   The total reserves to deposits ratio is calculated by dividing the total reserves by the total deposits. Total reserves include both required and excess reserves.
   \[
   \text{Total Reserves} = \text{Required Reserves} + \text{Excess Reserves} = 360 \text{ billion} + 40 \text{ billion} = 400 \text{ billion}
   \]
   \[
   r = \frac{\text{Total Reserves}}{\text{Deposits}} = \frac{400 \text{ billion}}{1200 \text{ billion}} = 0.3333
   \]

3. **Monetary Base (MB):**
   The monetary base is a measure that includes total currency in circulation and total reserves.
   \[
   MB = \text{Currency} + \text{Total Reserves} = 100 \text{ billion} + 400 \text{ billion} = 500 \text{ billion}
   \]

4. **Money Multiplier (m):**
   The money multiplier indicates the maximum amount the money supply could increase based on an increase in reserves.
   \[
   m = \frac{1 + c}{c + r} = \frac{1 + 0.0833}{0.0833 + 0.3333} = \frac
Transcribed Image Text:## Monetary Economics: Understanding Key Financial Metrics ### Given Data for Analysis: | **Financial Parameter** | **Value** | |-------------------------|--------------------| | Currency | $100 billion | | Required Reserves | $360 billion | | Deposits | $1200 billion | | Excess Reserves | $40 billion | ### Objective Calculate the following financial metrics: 1. **Currency to Deposit Ratio** 2. **Ratio of Total Reserves to Deposits** 3. **Monetary Base** 4. **Money Multiplier** 5. **Money Supply** ### Explanation of Metrics 1. **Currency to Deposit Ratio (c):** The currency to deposit ratio is calculated by dividing the total currency by the total deposits. \[ c = \frac{\text{Currency}}{\text{Deposits}} = \frac{100 \text{ billion}}{1200 \text{ billion}} = 0.0833 \] 2. **Ratio of Total Reserves to Deposits (r):** The total reserves to deposits ratio is calculated by dividing the total reserves by the total deposits. Total reserves include both required and excess reserves. \[ \text{Total Reserves} = \text{Required Reserves} + \text{Excess Reserves} = 360 \text{ billion} + 40 \text{ billion} = 400 \text{ billion} \] \[ r = \frac{\text{Total Reserves}}{\text{Deposits}} = \frac{400 \text{ billion}}{1200 \text{ billion}} = 0.3333 \] 3. **Monetary Base (MB):** The monetary base is a measure that includes total currency in circulation and total reserves. \[ MB = \text{Currency} + \text{Total Reserves} = 100 \text{ billion} + 400 \text{ billion} = 500 \text{ billion} \] 4. **Money Multiplier (m):** The money multiplier indicates the maximum amount the money supply could increase based on an increase in reserves. \[ m = \frac{1 + c}{c + r} = \frac{1 + 0.0833}{0.0833 + 0.3333} = \frac
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