EC111Class13Questions - a Find the value of the money...

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EC111 MACROECONOMICS Spring Term 2012 EC111 Class Exercise 13 1. The Marginal Efficiency of Investment schedule. a. Explain how and why would you expect the interest rate to influence aggregate investment? b. Why are expectations important in determining investment? 2. The Money Supply. a. What is high powered money? b. How can the central bank alter the amount of high powered money in the economy? c. Explain the role of the commercial banking sector in generating a multiple expansion of deposits when the amount of high powered money increases. 3. Suppose the public holds a cash/deposits ratio of = 0.2, and the commercial banking sector holds a reserve-deposit ratio of = 0.1.
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Unformatted text preview: a. Find the value of the money multiplier. b. How does the money multiplier change when the public's cash/deposit ratio rises to = 0.3? What might cause such a change? c. Suppose (with = 0.2) the current money supply is M s = 1000. How much should the Bank increase high powered money to raise the money supply to M s = 1200? d. As an alternative the Bank seeks to increase the money supply by altering the reserve ratio, . What value should it set? Why might this not be effective? 4. Money in the Global Financial Crisis. a. Explain the mechanisms through which the GFC affected the UK money supply. b. What could the Bank of England do to reverse these effects?...
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This note was uploaded on 03/15/2012 for the course EC 111 taught by Professor Timhatton during the Spring '12 term at Uni. Essex.

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