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Answer to Question #59184 in Macroeconomics for Abdullah Saeed

Question #59184
Task 1 – 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.
Expert's answer
a) Monetary Base = Currency + Bank Reserves
Monetary base = 30+ 15 = 45 billions

b) Bank reserve ratio = Bank reserves / Deposits
Bank reserve ratio = 15/300 = 0.05

c) Currency drain as a % of deposits = Currency·100%/Deposits
Currency drain as a % of deposits = 30 · 100/300=10%

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