If the required reserve ratio is 10 percent,currency in circulation is $400 billion,checkable deposits are $1,000 billion,and excess reserves total $1 billion,then the M1 money multiplier is

Question

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M1 = Currency + Checkable Deposits
Reserves = Required Reserves + Excess Reserves

Required Reserves = 0.1 x $1,000 billion = $100 billion
Total Reserves = Required Reserves + Excess Reserves = $101 billion

M1 Money Multiplier = 1 / Reserve Ratio = 1 / 0.1 = 10

M1 = Currency + Checkable Deposits = $400 billion + $1,000 billion = $1,400 billion

Total Monetary Base = Currency + Reserves = $400 billion + $101 billion = $501 billion

Money Supply = M1 Money Multiplier x Total Monetary Base = 10 x $501 billion = $5,010 billion

Therefore, the M1 money multiplier is 2.8 ($5,010 billion / $1,400 billion).

If the Required Reserve Ratio Is 10 Percent,currency in Circulation