The money supply in Econland is 1,500,and currency held by the public is equal to bank reserves.The desired reserve-deposit ratio is 0.20.Bank reserves equal
A) 200.
B) 250.
C) 300.
D) 500.
E) 1,500.

Question

Quizplus · Accepted Answer

The desired reserve-deposit ratio is 0.20, which means that banks must hold 20% of deposits as reserves. Therefore, the total amount of deposits must be five times greater than the amount of reserves. 
If currency held by the public is equal to bank reserves, then the currency held by the public must also be 20% of the total deposits, which means that the total amount of deposits is equal to $1,500/0.2 = $7,500. 
Since bank reserves are equal to currency held by the public, they must also be $1,500. 
Therefore, the correct answer is B, which is $1,500/6 = $250.

The Money Supply in Econland Is 1,500,and Currency Held by the Public