Substrate Record: qid 384

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qid 384 · business

Question: The public always holds the fraction C = (1 / 21) of its M (money supply) in cash and d = (20 / 21) of M in demand deposits, D. The bank is required by law to always have available a reserve ratio, r, of 1/5 of its deposits for withdrawal by bank customers. Verify that if D increases a) the change in the money supply, \DeltaM, will' be [1 / {(1 / 21) + [(1/5) × (20 / 21)]}] = (21 / 5)\DeltaD, b) the change in demand deposits will be = 4\DeltaD , and c) the change in cash will be .195 \DeltaD.

1. (21 / 5) \DeltaD, 4\DeltaD, .2\DeltaD
2. (21 / 9) \DeltaD, 8\DeltaD, .15\DeltaD
3. (21 / 3) \DeltaD, 7\DeltaD, .5\DeltaD
4. (21 / 6) \DeltaD, 3\DeltaD, .1\DeltaD
5. (21 / 4) \DeltaD, 5\DeltaD, .3\DeltaD
6. (21 / 10) \DeltaD, 10\DeltaD, .05\DeltaD
7. (21 / 8) \DeltaD, 6\DeltaD, .25\DeltaD
8. (21 / 11) \DeltaD, 1\DeltaD, .45\DeltaD
9. (21 / 2) \DeltaD, 9\DeltaD, .35\DeltaD
10. (21 / 7) \DeltaD, 2\DeltaD, .4\DeltaD

Our answer: A. (21 / 5) \DeltaD, 4\DeltaD, .2\DeltaD Source quote machine-checked (exact quote)

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