When the monetary base is equal to $200 billion, the desired reserve ratio is 0.10 and the currency ratio is equal to 0.20, the money supply is equal to ________.

Question

Quizplus · Accepted Answer

The money supply can be calculated using the money multiplier formula: Money Supply = Monetary Base × Money Multiplier. The money multiplier is calculated as 1 / (Reserve Ratio + Currency Ratio). In this case, the money multiplier is 1 / (0.10 + 0.20) = 1 / 0.30 = 3.33. Therefore, the money supply is $200 billion × 3.33 = $666.67 billion, which rounds to the closest option, $800 billion.

When the Monetary Base Is Equal to $200 Billion, the Desired