For this question, assume that individuals do not hold currency. Suppose that the ratio of reserves to deposits d is 0.10, and the central bank money supply H=$100. Money demand is given by M =$Y(0.6-1), where nominal income, $Y, is $2000 and i denotes the interest rate. Given the information, the equilibrium interest rate is 10% 5% 25% 15% 20%

For this question, assume that individuals do not hold currency. Suppose that the ratio of reserves to deposits d is 0.10, and the central bank money supply H=$100. Money demand is given by M =$Y(0.6-1), where nominal income, $Y, is $2000 and i denotes the interest rate. Given the information, the equilibrium interest rate is 10% 5% 25% 15% 20%

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter14: Modern Macroeconomics And Monetary Policy

Section: Chapter Questions

Problem 15CQ

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Suppose that wealth is $5trn and can be in money and bonds only. Suppose that yearly income is $1.5trn. Also, suppose that money demand function is given by Md = $Y (.8 - 2i) a. What is the demand for money and the demand for bonds when the interest rate is 2% (i=0.02)? 4% (i=0.04)?
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Assume that the balance sheet of a bank in your assigned country as below:Assets LiabilitiesReserves $5,000 Deposits $40,000Loans $45,000 Capital $10,000a. If the required reserve ratio is 3 percent, then how much does this bank has excessreserves?b. Suppose a bank purchases $1,500 of government securities using funds from reserves.How much do bank assets change as a result of this transaction? Show the change inthe balance sheet above. How much does Money Supply change due to this transaction?c. Calculate the bank’s leverage ratio. What is the maximum decrease (in %) in the marketvalue of assets before the bank becomes insolvent?
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assume (i) Consumers spend $200 billion plus 80% of after-tax income, or C=200+0.8 Yd (ii) Investment demand varies inversely with the interest rate, such that I= 500-2000r (iii) Currently government spending and taxes are both $250 billion, or G=250 and Tx=250, (iv) The total money demand or liquidity preference schedule for this economy is an inverse function of the rate of interest and is given by the equation MD=850-1000r (v) The required reserve ratio for banks in this economy is 20%. No bank holds excess reserves, and everybody keeps their money in the bank. The total of reserves in the banks is $150 billion. Answer the following questions given the information above. a) The central bank wants national income to be $3000 billion. What must investment be for the equilibrium level of national income to be $3000 billion (if investment alone changes in response to the change in the interest rate)? b) At what interest rate is this level of investment (your answer to part (a))…