Subpart (a):
The money supply of the economy.
Subpart (a):
Explanation of Solution
The Federal Reserve is the central bank of the US economy, and it is usually known as the Fed. The Fed has the responsibility to keep the economy controlled from the fluctuations, and it has to control the money supply of the economy through its
It is given that the economy contains 2,000 bills that have a value of $1 each. So, the
Concept introduction:
Money: It is any item that is accepted as the payment for the goods and services by the economy.
Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.
Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.
Subpart (b):
The money supply of the economy.
Subpart (b):
Explanation of Solution
The banks hold all the deposits as the excess reserves and people deposit all the currency with the banks, then the total deposits with the bank becomes $2,000, and since no loan is provided by the banks, the total reserves of the economy remain the same, which means that the total quantity of money in the economy remains as $2,000 itself. No new money is created.
Concept introduction:
Money: It is any item that is accepted as the payment for the goods and services by the economy.
Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.
Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.
Subpart (c):
The money supply of the economy.
Subpart (c):
Explanation of Solution
In the case when people hold $1,000 with them and deposits the remaining $1,000 with the banks where the banks maintain 100 percent reserves and nothing is provided as loans to the public, there will be no new currency generated and thus the total quantity of money in the economy will be the summation of the currency held by the public and the currency held by the banks. Thus, it remains the same $2,000.
Concept introduction:
Money: It is any item that is accepted as the payment for the goods and services by the economy.
Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.
Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.
Subpart (d):
The money supply of the economy.
Subpart (d):
Explanation of Solution
In the case when the banks have only 10 percent reserves and use the remaining to provide loans to the public, there will be a multiplier effect on the money supply and the multiplier value can be calculated as follows:
So, the value of the money multiplier in the economy is 10. Thus, when the people hold all the money as demand deposits with the banks, the banks use the money to create new money. Thus, the total money supply increases by the multiplier times, which can be calculated as follows:
Thus, the total money supply in the economy will be $20,000.
Concept introduction:
Money: It is any item that is accepted as the payment for the goods and services by the economy.
Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.
Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.
Subpart (e):
The money supply of the economy.
Subpart (e):
Explanation of Solution
In the case when the people hold equal amount of currency with them and with the bank
as demand deposits, since the reserve requirement ratio is 10 percent, in order to calculate the quantity of money, the following two equations must be satisfied:
and
We can substitute the first equation in the second equation as follows:
Thus, the deposits held with the banks are $1818.18. Since the public hold equal money with them and with the banks, the people will hold the same quantity with them which is $1818.18. Thus, the total quantity of money can be calculated by summating the two as follows:
Thus, the total quantity of money in the economy is equal to $3636.36.
Concept introduction:
Money: It is any item that is accepted as the payment for the goods and services by the economy.
Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.
Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.
Want to see more full solutions like this?
Chapter 11 Solutions
EBK STUDY GUIDE FOR MANKIW'S BRIEF PRIN
- answerarrow_forwardDiscuss the preferred deterrent method employed by the Zambian government to combat tax evasion, monetary fines. As noted in the reading the potential penalty for corporate tax evasion is a fine of 52.5% of the amount evaded plus interest assessed at 5% annually along with a possibility of jail time. In general, monetary fines as a deterrent are preferred to blacklisting of company directors, revoking business operation licenses, or calling for prison sentences. Do you agree with this preference? Should companies that are guilty of tax evasion face something more severe than a monetary fine? Something less severe? Should the fine and interest amount be set at a different rate? If so at why? Provide support and rationale for your responses.arrow_forwardNot use ai pleasearrow_forward
- For the statement below, argue in position for both in favor or opposed to the statement. Incompetent leaders can't be ethical leaders. Traditional leadership theories and moral standards are not adequate to help employees solve complex organizational issues.arrow_forwardpresentation on "Dandelion Insomnia." Poemarrow_forwardDon't used Ai solutionarrow_forward
- "Whether the regulator sells or gives away tradeable emission permits free of charge, the quantities of emissions produced by firms are the same." Assume that there are n identical profit-maximising firms where profit for each firm is given by π(e) with л'(e) > 0; π"(e) < 0 and e denotes emissions. Individual emissions summed over all firms gives E which generates environmental damages D(E). Show that the regulator achieves the optimal level of total pollution through a tradeable emission permit scheme, where the permits are distributed according to the following cases: Case (i) the firm purchases all permits; Case (ii) the firm receives all permits free; and Page 3 of 5 ES30031 Case (iii) the firm purchases a portion of its permits and receives the remainder free of charge.arrow_forwardcompare and/or contrast the two plays we've been reading, Antigone and A Doll's House.arrow_forwardPlease answer step by steparrow_forward
- Suppose there are two firms 1 and 2, whose abatement costs are given by c₁ (e₁) and C2 (е2), where e denotes emissions and subscripts denote the firm. We assume that c{(e) 0 for i = 1,2 and for any level of emission e we have c₁'(e) # c₂' (e). Furthermore, assume the two firms make different contributions towards pollution concentration in a nearby river captured by the transfer coefficients ε₁ and 2 such that for any level of emission e we have C₂'(e) # The regulator does not know the resulting C₁'(e) Τι environmental damages. Using an analytical approach explain carefully how the regulator may limit the concentration of pollution using (i) a Pigouvian tax scheme and (ii) uniform emissions standards. Discuss the cost-effectiveness of both approaches to control pollution.arrow_forwardBill’s father read that each year a car’s value declines by 10%. He also read that a new car’s value declines by 12% as it is driven off the dealer’s lot. Maintenance costs and the costs of “car problems” are only $200 per year during the 2-year warranty period. Then they jump to $750 per year, with an annual increase of $500 per year.Bill’s dad wants to keep his annual cost of car ownership low. The car he prefers cost $30,000 new, and he uses an interest rate of 8%. For this car, the new vehicle warranty is transferrable.(a) If he buys the car new, what is the minimum cost life? What is the minimum EUAC?(b) If he buys the car after it is 2 years old, what is the minimum cost life? What is the minimum EUAC?(c) If he buys the car after it is 4 years old, what is the minimum cost life? What is the minimum EUAC?(d) If he buys the car after it is 6 years old, what is the minimum cost life? What is the minimum EUAC?(e) What strategy do you recommend? Why? Please show each step and formula,…arrow_forwardO’Leary Engineering Corp. has been depreciating a $50,000 machine for the last 3 years. The asset was just sold for 60% of its first cost. What is the size of the recaptured depreciation or loss at disposal using the following depreciation methods?(a) Straight-line with N = 8 and S = 2000(b) Double declining balance with N = 8(c) 40% bonus depreciation with the balance using 7-year MACRS Please show every step and formula, don't use excel. The answer should be (a) $2000 loss, (b) $8000 deo recap, (c) $14257 dep recap, thank you.arrow_forward
- Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage LearningBrief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage LearningEconomics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning