Question

Go to the St. Louis Federal Reserve FRED database, and find the most current data available on Currency (CURRNS), Total Checkable Deposits (TCDNS), Total Reserves (RESBALNS), and Required Reserves (RESBALREQ).

1. Calculate the value of the currency deposit ratio c.
2. Use RESBALNS and RESBALREQ to calculate the amount of excess reserves, and then calculate the value of the excess reserve ratio e. Be sure the units of total and required reserves are the same when you do the calculations.
3. Assuming a required reserve ratio rr of 11%, calculate the value of the money multiplier m.

Short answer

1. The value of the currency deposit ratio c is$0.8017$.
2. The value of the excess reserve ratio e is $1.4405$.
3. The value of the money multiplier m will be $1.9161$.

Step-by-step solution

Part (a) Step 1: Given information

$\begin{array}{|lllll|}\hline \text{Variables}& \text{Currency(CURRNS)}& \text{TotalCheckableDeposits(TCDNS)}& \text{TotalReserves(RESBALNS)}& \text{RequiredReserves(RESBALREQ)}\\ \begin{array}{l}\text{Values in USD}\\ \text{billions (as on}{1}^{\text{st}}\\ \text{July, 2013)}\end{array}& 1130.3& 1409.8& 2094.225& 63.296\\ \hline\end{array}$

Part (a) Step 2: Calculation

The calculation is shown below,

$\text{Currency deposit ratio}\left(c\right)=\frac{\text{Currency(CURRNS)}}{\mathrm{Total}\mathrm{Checkable}\mathrm{Deposits}\left(\mathrm{TCDNS}\right)}$

$=\left(\frac{1130.3}{1409.8}\right)$

$=0.8017$

Part (a) Step 3: Final answer

The value of the currency deposit ratio c is$0.8017$.

Part (b) Step 1: Given information

$\begin{array}{|lllll|}\hline \text{Variables}& \text{Currency(CURRNS)}& \text{TotalCheckableDeposits(TCDNS)}& \text{TotalReserves(RESBALNS)}& \text{RequiredReserves(RESBALREQ)}\\ \begin{array}{l}\text{Values in USD}\\ \text{billions (as on}{1}^{\text{st}}\\ \text{July, 2013)}\end{array}& 1130.3& 1409.8& 2094.225& 63.296\\ \hline\end{array}$

Part (b) Step 2: Calculation

The calculation is shown below,

$\text{Excess Reserves(ER)}=\text{TotalReserves(RESBALNS)}-\text{RequiredReserves(RESBALREQ)}$

$=2094.225-63.296$

$=2030.929$

So,

localid="1647517191395" $\text{Excess Reserves Ratio}\left(\mathrm{e}\right)=\frac{{\displaystyle \mathrm{Excess}\mathrm{Reserves}\left(\mathrm{ER}\right)}}{\mathrm{Total}\mathrm{Checkable}\mathrm{Deposits}\left(\mathrm{TCDNS}\right)}$

$=\frac{2030.929}{1409.8}$

$=1.4405$

Part (b) Step 3: Final answer

The value of the excess reserve ratio e is$1.4405$

Part (c) Step 1: Given information

$\begin{array}{|lllll|}\hline \text{Variables}& \text{Currency(CURRNS)}& \text{TotalCheckableDeposits(TCDNS)}& \text{TotalReserves(RESBALNS)}& \text{RequiredReserves(RESBALREQ)}\\ \begin{array}{l}\text{Values in USD}\\ \text{billions (as on}{1}^{\text{st}}\\ \text{July, 2013)}\end{array}& 1130.3& 1409.8& 2094.225& 63.296\\ \hline\end{array}$

Part (c) Step 2: Calculation

The solution for the equation is explained below,

$\text{Money Multiplier}\left(m\right)=\frac{(1+\mathrm{currency}\mathrm{deposit}\mathrm{ratio}(\mathrm{c}\left)\right)}{(\mathrm{currency}\mathrm{deposit}\mathrm{ratio}(\mathrm{c})+\mathrm{required}\mathrm{reserve}\mathrm{ratio}(\mathrm{rr}\left)\right)}$

$=\frac{\left(1+0.8017\right)}{(0.8017+0.11004)}$

$=1.9761$

Part (c) Step 3: Final answer

The value of the money multiplier m will be$1.9761$.