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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

The economy of Elmendyn contains 2,000 $1 bills.

a. If people hold all money as currency, what is the quantity of money?

b. If people hold all money as demand deposits and banks maintain 100 percent reserves, what is the quantity of money?

c. If people hold equal amounts of currency and demand deposits and banks maintain 100 percent reserves, what is the quantity of money?

d. If people hold all money as demand deposits and banks maintain a reserve ratio of 10 percent, what is the quantity of money?

e. If people hold equal amounts of currency and demand deposits and banks maintain a reserve ratio of 10 percent, what is the quantity of money?

Subpart (a):

To determine

The money supply of the economy.

Explanation

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 monetary policies. When the purchase of the government bonds from the public takes place, it will provide the money to the public, which will increase the consumption of the economy. As a result of the multiplier effect, the money supply in the economy will increase by the multiplier times...

Subpart (b):

To determine

The money supply of the economy.

Subpart (c):

To determine

The money supply of the economy.

Subpart (d):

To determine

The money supply of the economy.

Subpart (e):

To determine

The money supply of the economy.

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