Suppose the Value of Bank Notes Issued by the Bank

question 175

Essay

Suppose the value of bank notes issued by the Bank of Canada last year was $56 billion, while the money supply (M2+) was about $1.3 trillion.
a. Assuming that half of the bank note value is in the hands of the population and the other half is in banks' reserves, what must have been the money multiplier?
b. What is the average bank reserve ratio corresponding to the money multiplier calculated in part a?
c. Now, let us assume that people hold one-tenth of their money (cash plus deposits) in cash and nine-tenths in bank deposits. With the reserve ratio calculated above, what is the value of the bank notes in the banks' reserves?
d. What is the value of the bank notes in circulation if the bank reserves are equal to the number you calculated in part c?

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