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Economics 121 B & C |
Quiz 9 Answers |
Prof. A. D. Becker |
The banking system has $65 billion in total reserves of which $63 billion are required reserves. There are $1,100 billion in checkable deposits and $500 of currency in circulation.
a) (3 points) What is the amount of the money supply (M1) in dollars?
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M1 |
$1,600 billion |
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M1 = checkable deposits + currency in circulation |
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b) (3 points) What is the amount of the monetary base (MB) in dollars?
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MB |
$565 billion |
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MB = total bank reserves + currency in circulation |
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c) (6 points) If the Federal Reserve were to announce an increase in the "discount rate" would this tend to increase or decrease the money supply? Explain.
An increase in the discount rate would tend to decrease the money supply. It encourages banks to hold more excess reserves which reduces their ability to make loans.