Question

**B.** **Monetary System**: The
monetary base of Moneyland is $450 million. The current-deposit
ratio (cr) is 0.2 and reserve-deposit ratio (rr) is 0.4. Calculate
the money multiplier and money supply. Show your work. (5 points
each)

**Money Multiplier =**

**Money Supply =**

c. **Quantity Theory of Money** In the country of
Wiknam, assume that V is constant. Real GDP (Y) grows by 3% per
year and the money stock (M) grows by 6% percent per year. What is
the growth rate of the price level, P? Use the equation: % ∆ M + %
∆ V = % ∆ P + % ∆ Y. Show our work. (7 points)

**D****. Money
Demand ** Assume k = .20, h = 700B, Y =
5,000B, P = 1, and i = .05. Calculate (M/P)

Answer #1

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Provide a brief explanation or show work
5. The ratio of the money supply to the monetary base is
called:
a. the currency–deposit ratio. b. the reserve–deposit ratio. c.
high-powered money. d. the money multiplier.
6. When the Fed makes an open-market sale,
it:
a. increases the money multiplier (m). b. increases the
currency–deposit ratio (cr). c. increases the monetary base (B). d.
decreases the monetary base (B).
7. Suppose the banking system currently has $400 billion
in reserves, the...

Suppose that currency in circulation (C) is $50 billion, the
amount of checkable deposits (D) is $500 billion, and excess
reserves (ER) are $20 billion. Also, the required reserve ratio
(rD) on checkable deposits is 5%. Calculate the money supply (M),
the required reserves (RR), the total reserves (R), the monetary
base (MB), the currency-to-deposit ratio (c), the excess
reserve-todeposit ratio (e), and the money multiplier (m)

Assume that bank deposits (D) are $3,200 million, the required
reserve ratio (rr) is 10%, and currency outstanding (C) is $400
million. By how much should the FED change the monetary base (?B)
and in which direction in order to decrease the money supply by
$100 million? Hint: Start by deriving the more complex money
multiplier and also assume that banks choose not to hold any excess
reserves (ER = 0, which therefore means ER/D = 0).

1. You are given the following equations for the real and
monetary sectors of a specific economy;
Real Sector Equations: C = 10,000 + 0.8 (Y – T); I = 20,000 –
6000 r; G = 29,000; T = 5,000 + 0.1 Y X = 10,000; M = 5,000 + 0.1
Y.
Monetary Sector Equations: Ms = 75,000; Md = 0.5 Y – 7,000 r; Yp
= 200,000.
Here, C = Consumption; Y = GDP = Income; T = Taxes;...

The real money demand curve is given by: L d (R, Y ) = 0.5Y −
100R − 20 where Y is the real GDP and R refers to the interest
rate. The initial monetary base level MB = 100. The initial money
supply level Ms = 200, price level P = 10 and initial output level
Y = 100. 1. Calculate the initial money multiplier and equilibrium
interest rate. The Fed increases the monetary base by 10% through
open...

i) Tilaknesia has a reserve ratio of 20%
in its banking system. Calculate the simple money
multiplier. (0.5
marks)
On a given day customers deposit $3,300 into their banks. Based
on the simple money multiplier calculated in part i), calculate the
total amount that the money supply in the banking system will
eventually increase
to. (0.5
marks)
Calculate the total amount that the money supply in the banking
system will eventually increase to if the reserve ratio decreases
to 16%. Assume the amount of...

Assume the real money demand function is
L(Y;i)=2000+0.3Y-5000i
where Y is real output, P is the price level, i is the nominal
interest rate on non-monetary assets and monetary assets earn no
interest.
a) Assuming that the asset market is in equilibrium at i=0.05.
Find equilibrium levels of real money supply, nominal money supply,
and the velocity of money if P=100, and
Y=2000.
b) Find the real income elasticity of money demand at the
equilibrium level of money balances found...

1. Consider an economy that produces and consumes bread and
automobiles. In the table below are data for two different
years:
Year 2010
Year 2025
Price of an automobile
$50,000
$60,000
Price of a loaf of bread
$10
$20
Number of automobiles produced
100
120
Number of loaves of bread produced
500,000
400,000
Using the year 2010 as the base year, compute the following:
nominal GDP, implicit price deflator and the CPI.
2.
Assume that GDP (Y) is 5,000. Consumption...

mm = money multiplier = .8
MB = monetary base = 2500
Money Demand: Md = P X [ a0 + .5 (Y) - 200
(i) ]
where: a0 = 800, Y = 4000
For simplicity we hold the price level fixed at 1 and assume
that inflationary expectations are fixed at 2%. Y is also held
constant in this problem.
1）What is the equilibrium interest rate (i)?
2）Suppose a0 falls to 600. What is the new
equilibrium interest rate?...

1. Recall the classical economists and one of their
favorite theories: the quantity theory of money and monetary
neutrality. The theory is expressed as an equation as follows: M x
V = P x Y. What does V stand for?
a. the value of the domestic currency
b. the velocity of money
c. the virtual reality of the universe
d. the velocity of investment spending in the economy
2. Following up on question 1 above, what does Y represent?
a....

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