Chair of the Federal Reserve calls and asks you how things are going and you tell him/her that you injected $100 billion in the system but it didnât work because banks are holding on to the ER (the banks never loaned them out, they hoarded them instead). Now you get some calls from bankers and you learn that there has been some âinternal substitutionâ within the M1 money supply. In particular, households prefer to hold more currency relative to deposits, i. e., the currency to deposit ratio rises. The new numbers are as follows: rr/D= .10 C = 900b, D = 1600 b ER =100 b. Use the new conditions from SCENARIO C to answer a. What is the MB?
b. What is the money multiplier?
c. What is the money supply?