ce n y y 31 9. The money multiplier The money multiplier is described in Section 4-4. Suppose the following assumptions

[answerhappygod]

Ce N Y Y 31 9 The Money Multiplier The Money Multiplier Is Described In Section 4 4 Suppose The Following Assumptions 1 (193.79 KiB) Viewed 18 times

ce n y y 31 9. The money multiplier The money multiplier is described in Section 4-4. Suppose the following assumptions hold: a. The public holds no currency. b. The ratio of reserves to deposits is 0.1. c. The demand for money is given by M = $Y(.8 - 4i) Initially, the monetary base is $100 billion and nomi- nal income is $5 trillion. 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 overall supply of money? Is it equal to the overall demand for money at the interest rate you found in (b)? d. What is the impact on the interest rate if central bank money is increased to $300 billion? e. If the overall money supply increases to $300 billion what will be the impact on i? (Hint: Use what you learned in (c).)