In Macroland,there is $10,000,000 in currency.The public holds half of the currency and banks hold the rest as reserves.If the banks' desired reserve-deposit ratio is 10%,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
E) $100,000,000;$110,000,000

Question

Quizplus · Accepted Answer

Since the public holds half of the currency, the amount of currency held by the public is $10,000,000 / 2 = $5,000,000. 
Therefore, the amount of currency that banks hold as reserves is also $5,000,000. 
If the banks' desired reserve-deposit ratio is 10%, then their deposits would be 10 times their reserves, which means deposits are $50,000,000 ($5,000,000 x 10). 
Finally, the money supply equals currency held by the public plus deposits, which is $5,000,000 + $50,000,000 = $55,000,000.

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