Assume the following: i. The public holds no currency. ii. The ratio of reserves to deposits (0) is 0.10. iii. The demand for money is given by Mª = $Y(0.81 – 2.3i). Initially, the monetary base (H) is $77 billion, and nominal income ($Y) is $4,700 billion. Calculate the demand function for central bank money: Hª = ( ) × () billion ()

Assume the following: i. The public holds no currency. ii. The ratio of reserves to deposits (0) is 0.10. iii. The demand for money is given by Mª = $Y(0.81 – 2.3i). Initially, the monetary base (H) is $77 billion, and nominal income ($Y) is $4,700 billion. Calculate the demand function for central bank money: Hª = ( ) × () billion ()

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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If the money demand function is given by Md=10+0.2Y-10r then a 10 unit increase in money supply will cause the LM schedule to shift. a) to the right by 10 units b) to the right by 50 units c) to the left by 40 units d) to the left by 50 units e) to the right by 40 units
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For all questions assume the following starting point: The money supply (M) is composed of currency (C) held by the non-bank private sector (NBPS) and demand deposits (DD) held at banks. Banks are required to hold cash reserves (CR) equal to 10% of their demand deposit liabilities. The remainder of the bank’s DD liabilities is backed by loans (L). Initially, banks have 2000 in cash reserves and the NBPS holds 500 in currency. Currently, banks not hold excess reserves. a. What are the initial values for DD, L, and M? DD= $20,000 L= $18,000 M= $5,000 b. What happens to the values in part a, if the NBPS decides to hold an additional 200 in currency? DD = 20,000, L = 18,000, M = 20,700 c. What would happen to the values in part a if banks decided to hold 2.5% excess reserves? DD = 20,000, L = 17,500, M = 20,500 d. What happens to the values in part a if concerns about the economy's future caused both b and c to happen? DD = 20,000, L = 17,500, M = 20,700 Given the results in…
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