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macro econ problem set 4

macro econ problem set 4 - Chapter 8#9 Chapter 9#1 a...

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Chapter 8 #9 Chapter 9 #1 a) Principal amount: \$1000 Term: 3years Coupon rate: 6% Coupon payment:\$60 b) At 3% : \$1029.13 At 8%: \$981.48 At 10%: \$963.64 c) Yes, if the risk of the bond had rose in the past couple years. #2 a) \$100 b) \$95.45 c) \$97.22 d) \$95.24, \$90.91, \$92.59 #7 a) Bank deposit: 400, Currency : 600 b) Currency held by public: 250 Bank Reserves: 62.5 c) Reserve ration: 0.1 #8 a) MM= Money Supply = C+D = k+1 Monetary Base= C+R = k+r Money multiplier(MM) is mostly greater than 1 because deposits(D) are generally greater than reserves (R). This is equivalent to saying that reserve ration is mostly smaller than 1. Money multiplier would equal 1 in cases in which reserves are equal to deposits, that is, if banks were not permitted to lend out any portion of deposits placed under their control. b) As bank reserves increases in \$1, \$5, \$10, the money supply will increase by 5, 25, 50 dollars. The money multiplier in this economy is 5 c) Money multiplier is 1/reserve ration d) Increase the reserve ratio Chapter 10 #2 #3 Output gap 1999: 2.4% expansionary 2000: 2.4% expansionary 2001: -0.4% recessionary 2002: -1.7% recessionary 2003: -1.9% recessionary

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