{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

PS 2-3 - ECON S-1452 Summer 2010 Problem Set 2(Due Monday...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
ECON S-1452 Summer, 2010 Problem Set 2 (Due Monday, July 12) 1. Consider two countries: North and South. In South banks hold 100% of their deposits as reserves. In North, the reserve requirement is 50%. Banks do not hold excess reserves in North or in South. No cash is held by the public in South, while in North citizens hold a total of $500,000 in cash. Each country has $1 million in reserves. Residents buy goods and services and do their banking only in their own country. a. What is the money supply (M1) in each country? What is the money multiplier in each country? Explain. Suppose that North and South decide to form a single country, the United States of North and South (USNS). In the new country, money supply is the sum of the money supply in North and South; the reserve requirement is 10%. Banks do not hold excess reserves. One year after USNS is formed, citizens of North decide to deposit the $500,000 of their cash holdings into their banks’ checking accounts. From that moment onward, no cash is ever held by the public in USNS.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern