If the desired reserve ratio is one-third, currency in circulation is $300 billion, and chequable deposits are $900 billion, then the monetary base is ________.

Question

Quizplus · Accepted Answer

The monetary base is the sum of currency in circulation and reserves. Reserves are equal to chequable deposits multiplied by the desired reserve ratio. Using the given information, reserves are $300 billion (one-third of $900 billion), so the monetary base is $600 billion (currency in circulation ($300 billion) plus reserves ($300 billion)).

If the Desired Reserve Ratio Is One-Third, Currency in Circulation