Question

If the required reserve ratio is 10%, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, calculate the money supply?

Answer 1

Money supply = $8 trillion

Explanation

Money Multiplier = 1 / Required reserve ratio

= 1 / 0.1

= 10

Money supply = Deposits * Money multiplier

= $800 billion * 10

= $8000 billion

= $8 trillion