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Assignment on money supply

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Money supply

Suppose that the monetary base (B) is $1000.

1. Suppose further that the reserve-deposit ratio (rr) is 1 (i.e., 100-percent-reserve banking). What is the money supply when the cash-deposit ratio (cr) is 0? What about when cr is 0.5? Does cr affect the money supply? Why or why not?

2. Now suppose instead that rr is 0.5. Calculate the money supply when cr = 0 and when cr = 0.5. Does cr affect the money supply? Why or why not?

Reference no: EM132667881

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