Question

If the required reserve ratio is 20 percent, currency in circulation is $300 billion, deposits are $900 billion, and excess reserves total $1 billion, then the money supply is ________ billion.

Answer 1

Answer:

$4500 billion.

Explanation:

Money Multiplier = 1 / Required reserve ratio

= 1 / 0.2

= 5

Money supply = Deposits * Money multiplier

= $900 billion*5

= $4500 billion

Therefore, The money supply is $4500 billion.