Answer:
a. If all money is held as currency then the banks create no additional money and money supply is = $1,000
b. If all money is in banks but the banks are not loaning it out as they are keeping it in reserves, no loans will be created. Supply is still $1,000.
c. The total money is the amount of deposits multiplied by the money multiplier.
Money Multiplier = 1/required reserve
= 1/0.2
= 5
Supply = 1,000 * 5
= $5,000
d. With equal amounts held as currency and demand deposits, the money multiplier will be;
=
Currency deposit ratio is 1 as the ratio to demand deposits is equal which = 1.
=
= 1.67
Money supply = 1,000 * 1.67
= $1,670
e. If the Central bank increases the money supply by 10% then the monetary base would increase by;
= 10% * 1,000
= $100