8 Suppose that the demand for money function wasMD = 4Y – 1000i where MD is the quantity ofmoney demanded, i is the rate of intest (an interestof 5 means 5 percent in this problem), and Y is realnational income, which currently is 1500. Thesupply of money is 1000, currency in circulationoutside the banking system is 100, the targetreserve ratio is 10 percent, there is no cash drain inthe banking system, and the recessionary gap is250. The price level does not change in thisproblem.What is the level of cash reserve of the bankingsystem?

The term ‘cash reserve (CRR) ratio’ is the share of total commercial bank’s deposits (or…

Business

Economics

8

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose that the demand for money function was
MD = 4Y – 1000i where MD is the quantity of
money demanded, i is the rate of intest (an interest
of 5 means 5 percent in this problem), and Y is real
national income, which currently is 1500. The
supply of money is 1000, currency in circulation
outside the banking system is 100, the target
reserve ratio is 10 percent, there is no cash drain in
the banking system, and the recessionary gap is
250. The price level does not change in this
problem.
What is the level of cash reserve of the banking
system?

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