Help with macroeconomics question?

Posted on 2014-04-22 11:37:00 in Economics by HEARTBEAT

Hi, about this question:

At one time, the country of Aquilonia had no banks, but had currency of $10 million. Then a banking system was established with a reserve requirement of 20 percent. The people of Aquilonia deposited half of their currency into the banking system. If banks do not hold excess reserves, what is Aquilonia's money supply now?



THE ANSWER IS: $30M

I'm confused as to how to get the money supply? Money supply is currency plus demand deposits right?



Here is my work:

Currency = $10M

Reserve = 20%

Deposits = $5M



Money Supply = ($10M + $5M) = $15M? But this isn't the right answer.



Thanks in advance!

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