Points Awarded
98.00
Points Missed
2.00
Percentage
98.0%
1.
Money Supply Problem
You are hired by the Chair of the Federal Reserve to manage the trading desk at the New York Fed and the
Chair tells you that he wants you to increase the money supply (M1) by 33.33 percent. They warn you to be
careful because in these uncertain times, the money multiplier tends to become very unstable. They suggest
that you stay ‘closely connected’ with the banking sector and then gives you a list of phone numbers to do so.
Note that in this problem we are targeting the growth rate of M1.
Reserve Market Initial Conditions (Scenario A)
rr/D= .10
C = 400 billion
D = 2000 billion
ER = 0 (not a typo)
M = C + D
Use the initial conditions IN SCENARIO A above to answer #1-3.
What is the MB?
A) 600
B) 700
C) 1060
D) 2400
E) 3200
Feedback:
MB = C + RR + ER = 400 + 200 + 0 = 600 = MB
Table for Individual Question Feedback
Points Earned:
3.0/3.0
Correct Answer(s):
A
2.
What is the money multiplier?

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