Assume that the demand for money is given by Md = $Y (0.8 - 4i ). Initially, the monetary base is $100 billion, and nominal income is $5 trillion. Also suppose that the public holds no currency and the ratio of reserves to deposits is 0.1. a. What is the demand for central bank money? b. Find the equilibrium interest rate by setting the demand for central bank money equal to the supply of central bank money. c. What is the overall supply of money? Is it equal to the overall demand for money at the interest rate you found in part (b)? d. What is the impact on the interest rate if central bank money is increased to $300 billion? e. What is the impact if the central bank decided to increase required reserve ratio to 0.2?

Assume that the demand for money is given by Md = $Y (0.8 - 4i ). Initially, the monetary base is $100 billion, and nominal income is $5 trillion. Also suppose that the public holds no currency and the ratio of reserves to deposits is 0.1. a. What is the demand for central bank money? b. Find the equilibrium interest rate by setting the demand for central bank money equal to the supply of central bank money. c. What is the overall supply of money? Is it equal to the overall demand for money at the interest rate you found in part (b)? d. What is the impact on the interest rate if central bank money is increased to $300 billion? e. What is the impact if the central bank decided to increase required reserve ratio to 0.2?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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