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 changes the reserve requirement ratio to 3%.Assuming that the banks still want to hold the same percentage of excess reserves what is the value of the money supply after the change in the reserve requirement ratio?
A)9,375 million Tazes
B)10,000 million Tazes
C)12,500 million Tazes
D)None of the above is correct to the nearest million medits.

Question

Quizplus · Accepted Answer

The money supply is equal to the sum of demand deposits and currency in circulation. In this case, all currency is on deposit at the bank, so the money supply is equal to demand deposits. The reserve requirement ratio is the percentage of demand deposits that banks are required to hold as reserves. If the reserve requirement ratio is 3%, then banks are required to hold 3% of their demand deposits as reserves.Before the change in the reserve requirement ratio, banks held 300 million Tazes of required reserves and 75 million Tazes of excess reserves. This means that they held a total of 375 million Tazes of reserves. After the change in the reserve requirement ratio, banks will be required to hold 3% of their demand deposits as reserves. This means that they will need to hold 3% of 7,500 million Tazes, which is 225 million Tazes.Since banks want to hold the same percentage of excess reserves, they will need to hold 75 million Tazes of excess reserves. This means that they will need to hold a total of 300 million Tazes of reserves.The money supply is equal to demand deposits, which is equal to 7,500 million Tazes minus the required reserves, which is 300 million Tazes. Therefore, the money supply is 7,500 million Tazes - 300 million Tazes = 7,200 million Tazes.

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