If the desired reserve ratio is ten percent, currency in circulation is $400 billion, chequable deposits are $1000 billion, and excess reserves total $1 billion, then the monetary base is ________.

Question

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The monetary base is the sum of currency in circulation and the reserves (both required and excess) held by banks. With a desired reserve ratio of 10%, the required reserves for $1000 billion in chequable deposits would be $100 billion (10% of $1000 billion). Given that excess reserves are $1 billion, total reserves are $101 billion. Adding this to the $400 billion in currency gives a monetary base of $501 billion.

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