Economics -Money supply and Money multiplier equation

timer Asked: Jan 13th, 2014
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Question Description

Can anyone help me with these problems??

Complete the following problems

1.  Calculate the money multipliers for the following reserve requirements when individuals hold no cash;

a.  5%

b.  10%

c.  20%

d.  25%

e.  50%

2.  If the reserve requirement is 20% and individuals hold no cash, calculate the amount of government securities that the Fed would need to either buy or sell to increase the money supply by $2 million, and indicate if they buy or sell.

3.  Does the value of the dollar rise or fall for each of the following:

a.  Fed makes substantial purchase of securities

b.  Banks increase lending

4.  If the money supply is $500, the velocity is 8 and the price level is $2, calculate:

a.  The level of nominal output (GDP)

b.  The quantity of production

c.  If the money supply rises by 20%, calculate the new level of nominal output

d.  If prices remained unchanged, calculate the new quantity of production.

Tutor Answer

School: University of Maryland

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