Handout 11 Key - Econ 3140-2 Fall 2009 Handout #11 Answer...

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Unformatted text preview: Econ 3140-2 Fall 2009 Handout #11 Answer Key 1. (Question Two from Abel et.al., Chapter 14, numerical problems) (a) Assume dollar amounts are in millions of dollars, and let: M = money supply CU = currency held by the public BASE = monetary base DEP = bank deposits RES = bank reserves res = banks&desired reserve-deposit ratio ( RES=DEP ) Hence, to calculate bank deposits we use: DEP = M & CU , DEP = 6 & 2 = 4 To calculate bank reserves we use: RES = res DEP , RES = (0 : 25) (4) = 1 To calculate the monetary base we use: BASE = CU + RES , BASE = 2 + 1 = 3 And nally, to calculate the multiplier we use: Multiplier = M BASE , Multiplier = 6 3 = 2 (b) RES = vault cash + reserves at the Central Bank = 1 + 4 = 5 First we calculate the currency held by the public CU = BASE & RES = 10 & 5 = 5 Next, we use M = CU + DEP = 5 + 20 Multiplier = M BASE = 25 10 = 2 : 5 2. (Question Three from Abel et.al., Chapter 14, numerical problems) (a) If r = i = 0 : 10 , what are the reserve-deposit ratio, the money multiplier, and the...
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Handout 11 Key - Econ 3140-2 Fall 2009 Handout #11 Answer...

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