Calculate the banks' desired reserve ratio and the currency...

Calculate the banks' desired reserve ratio and the currency drain ratio (as percentages). Use the following news clip to work Problems 13 and 14. Banks Drop on Higher Reserve Requirement China's central bank will raise its reserve ratio requirement by a percentage point to a record 17.5 percent, stepping up a battle to contain lending growth. Banks' ratio of excess reserves to deposits was 2 percent. Every half-point increase in the required reserve ratio cuts banks' profits by 1.5 percent.

Calculate the banks' desired reserve ratio and the currency drain ratio (as percentages).
Use the following news clip to work Problems 13 and 14.
Banks Drop on Higher Reserve Requirement
China's central bank will raise its reserve ratio requirement by a percentage point to a record 17.5 percent, stepping up a battle to contain lending growth. Banks' ratio of excess reserves to deposits was 2 percent. Every half-point increase in the required reserve ratio cuts banks' profits by 1.5 percent.

Transcript

00:01 Hello students.

00:03 So today we will learn about like how to compute monetary ways which is considered or as computed as some of reserves which are held by commercial banks at the central bank and also the currency that is being issued by them to the general public.

00:27 So this currency is simply or basically held by the individuals, businesses and banks.

00:34 So, the items that are included in monetary base is total currency in circulation along with the other reserves and also the deposit of reserves for which the monetary base is computed at two -third value.

01:09 Deposites of reserves is computed at two -third value.

01:14 So now let's say we take an example where total currency in circulation would be $30 billion in dollars.

01:26 And the other reserves would be $5 billion.

01:31 And the deposit of reserves is $15 billion for say.

01:41 So, this would ultimately result in a monetary base of dollar 45 billion.

02:00 Now, as we have computed the amount of monetary base in a particular country, now let's compute the quantity of money.

02:08 So, quantity of money would include the only two factors.

02:18 That means that are the currency that is in circulation along with the quantity.

02:23 Deposits.

02:25 So, deposits plus currency in circulation.

02:35 So, from the very same hypothetical example that from which we computed monetary base, the currency was given as 30 billions, whereas we will take deposits less, let's say, 300 billion.

02:51 So, the ultimate amount or the final amount for the quantity of money is 330...

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