Assume that the economy has initial cash holdings of C2000 T

Assume that the economy has initial cash holdings of C=$2000.

The required reserve ratio is rr=0.1

The currency deposit ratio if cr=0

What is the money supply?

Solution

20000 is correct

Money supply = 1/rr * deposits

Since cr is 0 people do not hold cash, they deposit all the amount. So deposits are 2000

Money supply = 2000/0.1= 20000