Let M denote the initial money supply. A friend of yours does not trust banks and keeps all his money in cash. He buys an old car for $20,000. The seller deposits the money in her checking account in Wells Fargo. The bank keeps 20% of the deposit in reserve and lends the rest to Jack. Jack keeps $2,000 in cash and spends the remainder on NVIDIA stock. The seller of the stock, Jane, transfers the whole amount to her checking account in Chase. Chase keeps 5% of the amount in reserve and lends to rest to Joshua. Joshua keeps $1,300 in cash and spends the rest on treasury securities. The seller of the securities happens to be the Fed. A fire in Joshua's uninsured house destroys $500 of his cash. Let M denote the resulting money supply. Calculate 1+1 the change in the money supply, M .-M. t t+1

Let M denote the initial money supply. A friend of yours does not trust banks and keeps all his money in cash. He buys an old car for $20,000. The seller deposits the money in her checking account in Wells Fargo. The bank keeps 20% of the deposit in reserve and lends the rest to Jack. Jack keeps $2,000 in cash and spends the remainder on NVIDIA stock. The seller of the stock, Jane, transfers the whole amount to her checking account in Chase. Chase keeps 5% of the amount in reserve and lends to rest to Joshua. Joshua keeps $1,300 in cash and spends the rest on treasury securities. The seller of the securities happens to be the Fed. A fire in Joshua's uninsured house destroys $500 of his cash. Let M denote the resulting money supply. Calculate 1+1 the change in the money supply, M .-M. t t+1

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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