Assume the monetary base is $100, the currency-deposit ratio is 0.5, and the reserve- deposit ratio is 0.1.
a. Calculate the money multiplier and the money supply.
b. Suppose the currency-deposit ratio rises to 1.0. If the Fed holds the monetary base constant, what happens to the money multiplier and the money supply?
c. Suppose the Fed wants to keep the money supply constant at the level found in part (a). How must it adjust the monetary base when the currency-deposit ratio rises?