Answer:
a) $2000
b) $2000
c) $2000
d) $20000
e) $11000
Explanation:
a) If people hold all money as currency:
Quantity of money = 2000 × $1 bills = $2000
b) If people hold all money as demand deposits and banks maintain 100% reserves:
Quantity of money = 2000 × $1 bills = $2000
c) If people hold equal amounts of currency and demand deposits and banks maintain 100% reserves
Since they are 2000 $1 bills and people hold equal amounts of currency and demand deposits and banks maintain 100% reserves, the 2000 $1 bills would be divided into two parts, one part for demand deposits and the other part for currency.
Therefore, demand deposits = 1000 × $1 bill = $1000
Currency = 1000 × $1 bill = $1000
Quantity of money = Currency + demand deposits = $1000 + $1000 = $2000
d) If people hold all money as demand deposits and banks maintain a reserve ratio of 10%.
Reserve ratio (r) = 10% = 0.1
Since people hold all money as demand deposits:
Therefore, demand deposits = 2000 × $1 bill × 1/r = $2000 × 1/0.1 = $20000
Quantity of money = Demand deposits × 1/r = $2000 × 1/0.1 = $20000
e) . If people hold equal amounts of currency and demand deposits and banks maintain a reserve ratio of 10%
Reserve ratio (r) = 10% = 0.1
Since they are 2000 $1 bills and people hold equal amounts of currency and demand deposits and banks maintain 100% reserves, the 2000 $1 bills would be divided into two parts, one part for demand deposits and the other part for currency.
Therefore, demand deposits = 1000 × $1 bill × 1/r = $1000 × 1/0.1 = $10000
Currency = 1000 × $1 bill = $1000
Quantity of money = Currency + demand deposit = $1000 + $10000 = $11000
