Consider a hypothetical ABC economy in which the narrowly-defined measure of the money supply (M1), as defined in the Canadian sense, in existence is 1250$ million. Assuming the economy's banking system behavior may be characterized by the following simple broad money-multiplier model in which all the variables are as defined in class:
MB= C+RR+ER (equilibrium condition)
C=0.25D (currency holdings of the non-bank public)
RR=RRd+RRt
RRd=0.05D (required reserves against demand deposits)
RRt=0.02T (required reserves against term deposits)
T=0.8D (definition of term deposits)
ER=ERd+ERt
ERd=0.002D (ratio of excess reserves to demand deposits)
ERt=0.001T (ratio of excess reserves to term deposits)