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
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