Assume That the Monetary Base (B) Is $100 Billion, the Reserve-Deposit

question 70

Essay

Assume that the monetary base (B) is $100 billion, the reserve-deposit ratio (rr) is 0.1, and the currency-deposit ratio
(cr) is 0.1.
a. What is the money supply?
b. If rr changes to 0.2, but cr is 0.1 and B is unchanged, what is the money supply?
c. If rr is 0.1 and cr is 0.2, but B is unchanged, what is the money supply?

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Definitions:

Machine-Hours

A measure of the amount of time a machine is operated for the purpose of producing goods.

Batches

Distinct groups of items or quantities produced or processed at the same time.

Overhead Cost

All costs on the income statement except for direct labor, direct materials, and direct expenses. Overhead costs relate to business operations and are not directly tied to a specific product or activity.

Activity Cost Pools

Categories in activity-based costing where costs are accumulated before being assigned to products or services based on their consumption of activities.