Consider an Economy That Has the Following Monetary Data

question 30

Multiple Choice

Consider an economy that has the following monetary data:
Currency in circulation=$300
Bank reserves=$50
Monetary base=$350
Deposits=$700
Money supply=$1000
The monetary base and the money supply are expected to grow at a constant rate of 20% per year.Inflation and expected inflation are 20% per year.Suppose that bank reserves and currency pay no interest,all currency is held by the public,and bank deposits pay no interest.What is the profit to the banks from the inflation?

• A)$130
• B)$140
• C)$190
• D)$200

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Definitions:

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