Question

Suppose that the monetary base (B) is $ 1000 billion, the reserve deposit ratio (rr) is 0.2, and the currency-deposit ratio (cr) is 0.12. Find the total money supply.

Answer 1

M=$\frac{(cr+1)}{(rr+cr)}\times B$

where; cr=0.12,rr=0.2,B=1000

M=$\frac{(0.12+1)}{(0.2+0.12)}\times 1000$

M=$3,500 billion