Answer to Question #178505 in Macroeconomics for TRUEVINE NANA ADWOA

Question

1.      Let us assume the banking reserves being 200 billion Eur in, currency in circulation 400 billion Eur and banking deposits 1200 billion Eur. Select any number of options

a)     The monetary base is the currency in circulation increased by banking reserves. Thus, the monetary base equals 60 billion Eur

b)     The banking reserve ratio is the ratio of deposits over banking services. The resulting banking reserve ratio is then 6.

c)      If banking reserves decrease by 50 billion Eur banking deposits decrease by 300 billion Eur

d)     Money multiplier describes the process of multiplication of monetary base which then forms money supply, in our case the multiplier is 2.667

e)     Money multiplier describes the process of multiplication of banking reserves which then forms money supply. In our case the multiplier is 8

Answer 1

As banking reserves are 1/6 of banking deposits, then if banking reserves decrease by 50 billion Eur, then banking deposits decrease by 300 billion Eur.

So, the only correct answer is c).