The monetary base is $100bn, currency is $25bn and reserves $100bn.
a. suppose that money supply (M1) is $200bn. 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)?