PSU ECON 104 Homework 5

# PSU ECON 104 Homework 5 - Points Awarded 98.00 Points...

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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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