There is $5,000,000 of currency in Econland,all held by banks as reserves.The public does not hold any currency.If the banks' desired reserve-deposit ratio is 25%,then the money supply equals
A) $5,000,000.
B) $6,250,000.
C) $10,000,000.
D) $20,000,000.
E) $25,000,000.

Question

Quizplus · Accepted Answer

The money supply is calculated by dividing the total reserves by the reserve-deposit ratio. Here, $5,000,000 / 0.25 = $20,000,000.

There Is $5,000,000 of Currency in Econland,all Held by Banks