The economy contains 2000 $1 bills.
a) If people hold all money as currency, what is the quantity of money?
b) If people hold all money as demand deposits and banks maintian 100 % reserves, what is the quantity of money?
c) If people hold equal amounts of currency and demand deposits and banks maintain 100% reserves, what is the quantity of money?
d)If people hold all money as demand depositis and banks maintain a reserve ratio of 10%, what is the quantity of money?
e)If people hold equal amounts of currency and demand deposits and banks maintain 10% reserves, what is the quantity of money?
The input of the question is how banks create money.
The sites below should help you answer this question and the ones that you posted as well.
HOW BANKS CREATE MONEY OUT OF NOTHING
How banks ceate money - Google Search
Banks Create Money
How Banks Create Money
Money Creation - Banking Secrets That Banks Don't Want Published!
Money creation - Wikipedia, the free encyclopedia
How banks ceate money - Google Search
To answer these questions, we need to understand the concept of money creation by banks.
a) If people hold all their money as currency, the quantity of money would simply be the total amount of currency in circulation, which in this case is 2000 $1 bills.
b) If people hold all their money as demand deposits and banks maintain 100% reserves, the quantity of money is the total amount of demand deposits. Since banks maintain 100% reserves, they are not creating any additional money by lending. Therefore, the quantity of money will still be 2000.
c) If people hold equal amounts of currency and demand deposits and banks maintain 100% reserves, again, the quantity of money will be the same as in part b, which is 2000.
d) If people hold all their money as demand deposits and banks maintain a reserve ratio of 10%, the quantity of money can be calculated using the money multiplier formula. The money multiplier is the reciprocal of the reserve ratio.
Money Multiplier = 1 / Reserve Ratio
= 1 / 0.10
= 10
So, the quantity of money will be the total amount of demand deposits multiplied by the money multiplier.
Quantity of Money = Demand Deposits x Money Multiplier
= 2000 x 10
= 20,000
e) If people hold equal amounts of currency and demand deposits and banks maintain a reserve ratio of 10%, the calculation remains the same as in part d. The quantity of money will still be 20,000.
In summary:
a) 2000
b) 2000
c) 2000
d) 20,000
e) 20,000
Please note that the above calculations assume simplified scenarios and do not take into account factors such as fractional reserve banking or other complexities that exist in real-world banking systems.