C h a p t e r 2 5
In the United States today, money includes which of the
Federal Reserve bank notes in Citibank’s cash machines
Money includes currency outside the banks. Currency inside cash
machines is not money.
b. Your Visa card
The Visa card is not money.
c. Coins inside a vending machine
The coins inside a vending machine are money.
d. U.S. dollar bills in your wallet
The dollar bills inside your wallet are money.
e. The check you have just written to pay for your rent
The check is not money.
f. The loan you took out last August to pay for your school fees
The loan is not money.
The commercial banks in Zap have
If the banks have n
o excess reserves, calculate the banks’
desired reserve ratio.
The banks’ desired reserves equal their reserves, $250 million,
divided by their deposits, $2,000 million, which is 12.5 percent.
You are given the following information about the economy of
Nocoin: The banks have deposits of $300 billion. Their reserves
are $15 billion, two thirds of which is in deposits with the
central bank. Households and firms hold $30 billion in bank
notes. There are no coins! Calculate
a. The monetary base.
The monetary base is $45 billion. The monetary base is the sum
of the central bank’s notes, banks’ deposits at the central bank,
and coins held by households, firms, and banks. There are $30
billion in notes held by households and firms, banks’ deposits
at the central bank are $10 billion (2/3 of $15 billion), the banks
hold other reserves of $5 billion (which are notes), and there
are no coins. The monetary base is $45 billion.
b. The quantity of money.
The quantity of money is $330 billion. In Nocoin, deposits are
$300 billion and currency is $30 billion, so the quantity of money
is $330 billion.
The banks’ reserve ratio (as a percentage).
The banks’ reserve ratio is 5 percent. The banks’ reserve ratio
is the percent of deposits that is held as reserves. In Nocoin,
deposits are $300 billion and reserves are $15 billion, so the
reserve ratio equals ($15 billion/$300 billion)
100, which is