In Macroland there is $10,000,000 in currency. The public holds half of the currency and banks hold the rest as reserves. If banks' desired reserve/deposit ratio is 10 percent, deposits in Macroland equal ________ and the money supply equals ________.
A)$50,000,000; $60,000,000
B)$55,000,000; $55,000,000
C)$50,000,000; $55,000,000
D)$100,000,000; $100,000,000

Question

Quizplus · Accepted Answer

In Macroland, banks hold $5,000,000 in reserves, which must be 10 percent of deposits, so deposits are $50,000,000. Since the public also holds $5,000,000, the total money supply equals deposits and currency held by public or $50,000,000 + $5,000,000 = $55,000,000.

In Macroland There Is $10,000,000 in Currency