Money Multiplier: =Drr = required reserve ratio = 0.10C = currency in circulation = $ 400 billion= checkable deposits= $800 billion1 + cER= excess reserverr + e + c-$0.80 billionM = money supply (M1) = C + D = $1,200c = currency ratio = C/D = $400/$800= 0.5e excess reserve ratio = ER/D = $.80 b / $800 bUsing the formula for the money multiplier above, derive is the MoneyMultiplier?

Here Money multiplier formula is given Money multiplier = 1+c / rr + e + c

Money Multiplier: 1 + c rr + e + c required reserve ratio = 0.10 C = currency in circulation = $ 400 billion D = checkable deposits = $800 billion ER = excess reserve - $0.80 billion Mmoney supply (M1) = C + D = : C + D = $1,200 c = currency ratio = C/D = $400/$800= 0.5 e = excess reserve ratio = ER/D = $.80 b / $800 b Ising the formula for the money multiplier above derive is the Mo

Money Multiplier: 1 + c rr + e + c required reserve ratio = 0.10 C = currency in circulation = $ 400 billion D = checkable deposits = $800 billion ER = excess reserve - $0.80 billion Mmoney supply (M1) = C + D = : C + D = $1,200 c = currency ratio = C/D = $400/$800= 0.5 e = excess reserve ratio = ER/D = $.80 b / $800 b Ising the formula for the money multiplier above derive is the Mo

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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What is the value of the money multiplier when the required reserve ratio is: Instructions: Enter your responses rounded to two decimal places. (a) 16 percent? (b) 12 percent?
1.4
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9. How would you incorporate security considerations/costs into the transactions demand model? What would this imply for the demand for currency in a relatively insecure urban environment (a) compared with a relatively safe one, (b) when owner-identiﬁed smart cards become available? Do these factors affect the demand for demand deposits? How would the proportion of currency to demand deposits be affected in these cases? 10. Can the transactions demand model be used to explain why ﬁnancial innovations in recent decades have reduced the transactions demand for M1? 11. Are transactions demand models useless, as Sprenkle (1969) argued? If they are, how would you explain the demand for M1 or just for demand deposits in the economy?
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