If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the monetary base is

Question

BlackTom AI · Accepted Answer

To determine the monetary base, we need to sum currency in circulation and total reserves (which include required reserves plus excess reserves).
First, calculate required reserves: 10% of checkable deposits (800 billion) equals 0.10 × 800 = 80 billion.
Next, add the provided excess reserves: 0.8 billion.
Total reserves = 80 billion + 0.8 billion = 80.8 billion.
Now add currency in circulation to the total reserves to obtain the monetary base: 400 billion (currency) + 80.8 billion (reserves) = 480.8 billion.
Option by option:
- '$80.8 billion': This would correspond to total reserves only, omitting currency in circulation, which is incorrect because MB includes currency plus reserves.
- '$480.8 billion': This exactly matches the computed monetary base (currency in circulation plus total reserves), so it is correct.
- '$80 billion': This reflects just the required reserves (80.0 billion) and ignores excess reserves and currency, making it incomplete.
- '$480 billion': This is close but misses the 0.8 billion of excess reserves, so it undercounts the monetary base.

ECON 161A LEC A: MONEY... Homework 3 MCQ

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the monetary base is

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