Medium of exchange Unit of account Store of value Gold standard Reserve ratio binosini di QUESTIONS 1 Suppose that the monetary base is £20 billion, that the general public wish to hold 20 per cent of their money in cash and the remaining 80 per cent in bank deposits, and that banks wish to hold a 5 per cent cash reserve

Medium of exchange Unit of account Store of value Gold standard Reserve ratio binosini di QUESTIONS 1 Suppose that the monetary base is £20 billion, that the general public wish to hold 20 per cent of their money in cash and the remaining 80 per cent in bank deposits, and that banks wish to hold a 5 per cent cash reserve. What will be the size of the broad money stock, according to the ratios approach? 2 How does the answer to Question 1 change for bank reserve ratios of a) 0 per cent, b) 1 per cent, and c) 10 per cent? 3 How does the answer to Question 1 change for general public cash holdings of a) 0 per cent, b) 5 per cent, c) 100 per cent? 4 How would the answers to Questions 2 and 3 change if the monetary base were £40 billion?