Commercial banks in United Economy have total deposits of AED 300 billion. Their reserves are AED 15 billion, two- thirds of which are with the Central Bank as deposits. There are AED 30 billion notes outside the banks. There are no coins!
a) The monetary base.
b) The banks’ reserve ratio.
c) Currency drain as a % of deposits.
Deposits - 300 billion, Total reserves - 15 billion, Required reserves - 2/3*15 = 10 billion Notes outside the banks - 30 billion a) The monetary base is M = 300 + 15 + 30 = AED 345 billion b) The banks’ reserve ratio rr = 10/300 = 0.033 or 3.3% c) Currency drain as a % of deposits is 30/300 = 0.1 or 10%