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17 June, 19:06

If the required reserve ratio is 10%, actual reserves are $10 million, and currency in circulation is equal to $20 million, M1 will at most to be equal to a $150 million. b $20 million. c $90 million. d $30 million. e $120 million.

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  1. 17 June, 19:27
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    The correct answer is E

    Explanation:

    M1, M2 and M3 are the terms which measure the money supply of United States, referred to as money aggregates.

    The formula for computing the M1 is as:

    M1 = coins as well as currency in circulation + checkable or demand deposit + traveler checks

    where

    Currency in circulation is $20 million

    Demand deposit is as:

    = Required reserve * Actual reserve

    = 10 * $10 million

    = $100 million

    Putting the values above:

    M1 = $20 million + $100 million

    M1 = $120 million
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