Scenario 29-2.
The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi.The local unit of currency is the taz.Aggregate banking statistics show that collectively the banks of Tazi hold 300 million tazes of required reserves,75 million tazes of excess reserves,have issued 7,500 million tazes of deposits,and hold 225 million tazes of Tazian Treasury bonds.Tazians prefer to use only demand deposits and so all money is on deposit at the bank.
-Refer to Scenario 29-2.Suppose that the Bank of Tazi changes the reserve requirement to 3 percent.Assuming that the banks still want to hold the same percentage of excess reserves what is the value of the money supply after banks adjust to the change in the reserve requirement?
A)9,375 million tazes
B)10,000 million tazes
C)12,500 million tazes
D)None of the above is correct to the nearest million tazes.

Question

Quizplus · Accepted Answer

The money supply will increase by the amount of excess reserves that are released when the reserve requirement is lowered. In this case, the banks are holding 75 million tazes of excess reserves, so the money supply will increase by 75 million tazes. The new money supply will be 7,500 million tazes + 75 million tazes = 7,575 million tazes.

Scenario 29-2. The Monetary Policy of Tazi Is Controlled by the Country's