ps9 - ECON 205 PRINCIPLES OF MACROECONOMICS FALL 2007 MARK...

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ECON 205: PRINCIPLES OF MACROECONOMICS FALL 2007 MARK MOORE PROBLEM SET 9 1. Baumol and Blinder, ch. 13 (p. 275 in 2007 Update), Test Yourself, question 1. 2. Baumol and Blinder, ch. 13 (p. 275 in 2007 Update), Test Yourself, question 3. 3. Baumol and Blinder, ch. 13 (p. 275 in 2007 Update), Test Yourself, question 4. 4. Baumol and Blinder, ch. 13 (p. 275 in 2007 Updte), Test Yourself, question 7. 5. Baumol and Blinder, ch. 13 (p. 276 in 2007 Update), Discussion Question 4. 6. Baumol and Blinder, ch. 13 (p. 276 in 2007 Update), Discussion Question 6. 7. Explain how changes in the money supply affect output. 8. Explain the most important reason why the AD curve slopes down. ECON 205: PRINCIPLES OF MACROECONOMICS FALL 2007 MARK MOORE PROBLEM SET 9: SOLUTIONS 1. Required reserves=$60 billion. Total deposits = $60 billion/(required reserve ratio). The money supply = deposits plus currency outside banks = deposits plus $60 billion. Therefore: (i) required reserve ratio = 10 % implies money supply=$60 bn/.1 + $60 bn =$660 bn. (ii) required reserve ratio = 12.5% implies money supply=$60 bn/.125 + $60 bn =$540 bn.
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