Question

11. The economy of Elmendyn contains 2,000 $1 bills.

Answer 1

Knowing that the economy of Elmendyn contains 2,000 $1 bills:
A. If people held all money as currency, the money is circulated in the economy. The quantity of money would be $ 2000.
B. If people hold all money as demand deposits, and banks maintain 100 percent reserves, the quantity of money will still be $ 2000. Demand deposit is an account that lets you withdraw without further notice. A bank reserve is the currency that the bank does not lend to the public. In this situation, the money circulating in the economy is $ 2000.
C. If people hold equal amounts of currency and demand deposits, and banks maintain 100 percent reserves, the quantity of money is $ 2000. In this situation, the currency is $1000 and the demand deposit is another $1000. With this the total amount of money circulating in the economy is $ 2000.
D. If people hold all money as demand deposits and banks maintain a reserve ratio of 10 percent, the answer is $20 000. The calculation can be done through this:
10 x (2,000 - C)=D
When all money is held as a deposit, there is no currency (C=0)
So 10 x (2,000 - 0) = D
D = $20,000
E. If people hold equal amounts of currency and demand deposits and banks maintain a reserve ratio of 10 percent, the quantity of money is $3,636. In this situation, it is given that the amount of currency is equal to the amount of demand deposit.
So the calculation is this:
10 x (2,000-C)=D
10 x (2,000-D)=D
$20,000 - 10D =D
$20,000 =11D
1,818=D
Since C=D, C is also 1,818
C+D= $3,636