How large is the money supply (M1)? How large are the required reserves? How large are excess reserves? By how much could the banks increase their lending activity?
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Assume that the following data describe the condition of the banking system:
Total Reserves: $200 billion
Transactions Deposits: $800 billion
Cash held by the public: $100 billion
Reserve Requirement: 0.20
a) How large is the money supply (M1)?
b) How large are the required reserves?
c) How large are excess reserves?
d) By how much could the banks increase their lending activity?
a) Money supply (M1) includes currency in circulation, transaction-account balances, and traveler's checks. ...
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