Tazian Banking Statistics
The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the Taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million Tazes of required reserves, 75 million Tazes of excess reserves, have issued 7,500 million Tazes of deposits, and hold 225 million Tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all currency is on deposit at the bank.
-Refer to Tazian Banking Statistics.Suppose that the Bank of Tazi loaned the banks of Tazi 10 million Tazes.Suppose also that both the required reserve ratio and the percentage of deposits held as excess reserves stay the same.By how much would the money supply change?
A)250 million Tazes
B)200 million Tazes
C)125 million Tazes
D)None of the above is correct.

Question

Quizplus · Accepted Answer

The money multiplier is calculated as 1 divided by the reserve ratio. The reserve ratio is the sum of required and excess reserves divided by total deposits, which is (300+75)/7500 = 0.05. The money multiplier is 1/0.05 = 20. The change in money supply is the loan amount multiplied by the money multiplier: 10 million Tazes * 20 = 200 million Tazes.

Tazian Banking Statistics The Monetary Policy of Tazi Is Controlled by the Country's