If the required reserve ratio is 10 percent,currency in circulation is $400 billion,checkable deposits are $1,000 billion,and excess reserves total $1 billion,then the money supply is ________ billion.

Question

Quizplus · Accepted Answer

The money supply can be calculated using the formula: Money Supply = Currency + Checkable Deposits.
First, find the total reserves held by banks: Required Reserves = Required Reserve Ratio x Checkable Deposits = 0.1 x $1,000 billion = $100 billion.
Then, find the actual reserves held by banks: Actual Reserves = Required Reserves + Excess Reserves = $100 billion + $1 billion = $101 billion. 
Finally, find the currency held by the public: Currency = Currency in Circulation - Excess Reserves = $400 billion - $1 billion = $399 billion.
Now we can calculate the money supply: Money Supply = Currency + Checkable Deposits = $399 billion + $1,000 billion = $1,399 billion or $1.4 trillion. Therefore, the correct answer is C.

If the Required Reserve Ratio Is 10 Percent,currency in Circulation