8. What is the money multiplier? Round to 4 decimal places.A) 1.2631 B) 2.2642 C) 4.0001 D) 5.4013 Feedback: MM = [(C/D + 1) / (C/D + RR/D + ER/D)] = [(.50 + 1) / (.50 + .10 +.0625] = 2.26415 = MM Correct Answer(s):B

Table for Individual Question Feedback Points Earned: 3.0/3.0

9. What is the money supply? Use mm x MB to calculate this and Round to the nearest whole number.

Table for Individual Question Feedback Points Earned: 3.0/3.0

10. Scenario D:Now the Chair is not pleased with your work, and calls again. Assuming that the money multiplier is now stable (i.e., the value you found in #8), you need to figure out what to do, in terms of open market operations, to hit the 33.33 percent money growth rate desired by the chair and the FOMC. To do this you must first identify the target money supply. Then you will be able to calculate the needed monetary base and finally you will be able to calculate the amount of open market purchases/sales. Work through these steps in #10 12.Your goal is to increase the money supply by 33.33%. Use the Money supply you found in #9 and increase it by 33.33%, then round to the nearest whole number. The target money supply is: –

Feedback: IDENTIFY THE TARGET MONEY SUPPLY, CALL IT M* = (4/3) x 2400 = 3200 = M* Table for Individual Question Feedback Points Earned: 3.0/3.0

11. The money multiplier is stable at the value you found in #8. Use it and your answer from #10 to calculate the appropriate monetary base. Round to the nearest whole number.

Feedback:FEEDBACK: WE KNOW THE MONEY MULTIPLIER IS STABLE AT 2.2642 = MM SO THE ONLY UNKNOWN IS THE APPROPRIATE MONETARY BASE (CALL IT MB*) AND THAT IS CONVENIENT SINCE YOU CAN INFLUENCE THE MB THROUGH OPEN MARKET OPERATIONS 3200 = 2.2642 X MB* MB* = 1413.302 Table for Individual Question Feedback Points Earned: 4.0/4.0

12. NOTE: no graphing was required for Part 1. However you should be comfortable graphing the monetary base graph and the money supply graph for part 1. These graphs will be shown in the solutions so that you can check your understanding. An open market _______of ______ must occur to reach the monetary base found in #11 above (hint: take your answer from #11 and subtract your answer from #7).A) purchase, 353 B) sale, 353 C) purchase, 800 D) sale, 800 Feedback:SINCE THE ‘OLD’ MB = 1060, THEN YOU NEED TO CONDUCT SOME MAJOR OPEN MARKET PURCHASES TO RAISE MB FROM 1060 TO 1413, OPEN MARKET PURCHASES = 353. NOTE: no

graphing was required for Part 1. However you should be comfortable graphing the monetary base graph and the money supply graph from this question. A graphed solution is shown below so you can check your work. Here the graph of the Monetary Base is on the left and the graph of the Money Supply on the right. Point A shows the conditions that prevailed in part a), point B shows the conditions that prevailed in part b), point C shows the conditions that prevailed in part C) and finally point D shows the conditions that prevailed in part D).