The money supply in Econland is 1500, and currency held by the public equals bank reserves.The desired reserve-deposit ratio is 0.20.Bank reserves equal:

Question

Quizplus · Accepted Answer

The desired reserve-deposit ratio is 0.20, meaning that banks are required to hold 20% of total deposits as reserves. Since currency held by the public equals bank reserves, we know that the total amount of currency held by the public is also 20% of total deposits. Let's call total deposits "D":
Currency held by the public = Bank reserves = 0.20D
The money supply in Econland is 1500, which includes both currency held by the public and deposits:
1500 = Currency held by the public + Deposits
We can substitute in our equation for currency held by the public:
1500 = 0.20D + D
1500 = 1.20D
D = 1250
Now that we know total deposits are 1250, we can calculate bank reserves by multiplying deposits by the desired reserve-deposit ratio:
Bank reserves = 0.20 x 1250 = 250
Therefore, the correct answer is B) 250.

The Money Supply in Econland Is 1500, and Currency Held