The currency is $25 and reserves $100.
a. Suppose that money supply (M1) is $200. What is the money multiplier? What is the currency-deposit ratio? What is the reserve-deposit ratio?
b. If the currency-deposit ratio increases, would the money supply increase or decrease?
c. Under "narrow banking" proposals, banks would have to hold all of their deposits as reserves, so the reserve-deposit ratio would be 1. Under narrow banking, what is the money multiplier and money supply (M1)?