Answer to Question #315601 in Macroeconomics for anu

Question

In the economy of Nocoin, Bank deposits are $300 billion, bank reserves are $15 billion of which two-thirds are deposits with the central bank. Households and firms hold $30 billion in bank notes. There are no coins. Calculate:

1. The monetary base and quantity of money.
2. The banks’ desired reserve ratio and the currency drain ratio (as percentage).

Answer 1

Monetary base= reserves+ money in circulation in households and firms

15 billion+ 30 billion= $ 45 billion

Quantity of money= Bank deposit+ money in circulation

$300 billion+ 30 billion

Quantity of money= $330 billion

2.

Currency drain ratio

=Amount of money in circulation/ total deposits

30 billion/ 300 billion times 100%

= 10%

Desired reserve ratio= Total reserves/ deposits times 100%

15/300 times 100%= 5%