Q. At one time, the country of Aquilonia had no banks, but had currency of $10 million. Then a banking system was established with a reserve requirement of 20 percent. The people of Aquilonia deposited half of their currency into the banking system. If banks do not hold excess reserves, illustrate what is Aquilonia's money supply now?
The banking system has $10 million in reserves, the reserve requirement is 20 percent, and also there are no excess reserves. The public holds $10 million in cash. Then bankers decide that it is prudent to hold some excess reserves, also so begin to hold 25 percent of deposits reserves in the form. Additional things the same this action will cause the money supply to illustrate what?