A hypothetical economy is having currency in circulation of $100m, and deposits of $400m. Assume that required reserves are $40m and excess reserves are 60m a) Calculate the monetary base. How much is the money supply? b) Calculate the effect on the money supply of a decrease of currency in circulation by $40m. c) What would the central bank do to offset the effects of the decrease in the currency in circulation by $40m?

A hypothetical economy is having currency in circulation of $100m, and deposits of $400m. Assume that required reserves are $40m and excess reserves are 60m a) Calculate the monetary base. How much is the money supply? b) Calculate the effect on the money supply of a decrease of currency in circulation by $40m. c) What would the central bank do to offset the effects of the decrease in the currency in circulation by $40m?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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