If the desired reserve ratio is ten percent, currency in circulation is $400 billion, chequable deposits are $800 billion, and excess reserves total $0.8 billion, then the monetary base is ________.

Question

Quizplus · Accepted Answer

The monetary base is composed of currency in circulation and reserves (both required and excess). Given a ten percent reserve ratio and chequable deposits of $800 billion, required reserves would be $80 billion (10% of $800 billion). With excess reserves of $0.8 billion, total reserves are $80.8 billion. Adding this to the currency in circulation ($400 billion) gives a monetary base of $480.8 billion.

If the Desired Reserve Ratio Is Ten Percent, Currency in Circulation