The public holds no currency. The ratio of reserves to deposits is 0.1. The demand for money in an economy is given by Md = $Y(0.8 – 4i). Initially, the monetary base is $100 billion, and nominal income is $5000 billion (or $5 trillion). Please answer the following questions: 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 value for money multiplier?
The public holds no currency. The ratio of reserves to deposits is 0.1. The demand for money in an economy is given by Md = $Y(0.8 – 4i). Initially, the monetary base is $100 billion, and nominal income is $5000 billion (or $5 trillion). Please answer the following questions: 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 value for money multiplier?
Chapter26: Monetary Policy
Section: Chapter Questions
Problem 4SQP
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Question
The public holds no currency. The ratio of reserves to deposits is 0.1. The demand for money
in an economy is given by Md = $Y(0.8 – 4i). Initially, the monetary base is $100 billion, and
nominal income is $5000 billion (or $5 trillion).
Please answer the following questions:
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 value for money multiplier?
D) Given that overall money supply equals (1/reserve ratio)*monetary base, is it equal to
the overall demand for money at the interest rate you found in part (B)?
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