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Unformatted text preview: Study Guide for Chapter 8-9 ECON4721-002 Fall 2011 1 A Basic Model of Reserve Requirement Model specifications: 1. Two-period returns on capital is X annualized return on capital is x ( x = X ). 2. Total deposit is H t = N t h t where h t is determined by the consumer problem. 3. Reserve requirement [0 , 1]. 4. Stationary CE. Key macroeconomic indicators in the equilibrium: Price level : v t M t = H t v t = H t M t p t = 1 v t = M t H t Inflation rate : p t +1 p t = M t +1 H t +1 M t H t = M t +1 M t N t N t +1 = z n Seigniorage : R t = v t ( M t- M t- 1 ) = v t M t (1- 1 z ) = H t (1- 1 z ) Investment level : k t = (1- H t Interest rate : r = r (1- ) X + n z 2 = s X + n z 2- X 2 Money Multiplier Define the total money supply as M 1 t , and the monetary base as M t . M t is the total amount of currency (papers and coins) in circulation in the economy....
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- Fall '11