In Econland,all $5,000,000 in currency is held by banks as reserves.The public does not hold any currency.If the banks' desired reserve-deposit ratio is 10%,the money supply in Econland equals
A) $4,545,545.
B) $5,000,000.
C) $5,500,000.
D) $50,000,000.
E) $55,000,000.

Question

Quizplus · Accepted Answer

The money supply is determined by the reserve-deposit ratio. With a 10% reserve ratio, banks can lend out 90% of deposits. The money multiplier is 1/0.10 = 10. Therefore, the money supply is 10 times the reserves, which is $5,000,000 * 10 = $50,000,000.

In Econland,all $5,000,000 in Currency Is Held by Banks as Reserves.The