Question 5 The money supply in Dreamland is 100.000$. In that country, banks hold exactly 10% of deposits as reserves. If the monetary base is 5000$, what is the currency deposit ratio in this economy?
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- Money supply (M) = 100,000$ - Monetary base (MB) = 5,000$ - Bank reserves as a percentage of deposits = 10% Show more…
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In the economy of Nocoin, bank deposits are $\$ 300$ billion. Bank reserves are $\$ 15$ billion, of which two thirds are deposits with the central bank. Households and firms hold $\$ 30$ billion in bank notes. There are no coins. Calculate a. The monetary base and quantity of money. b. The banks' desired reserve ratio and the currency drain ratio (as percentages).
In the economy, the following statistics describe the money supply: CU = $500 billion RES = $150 billion DEP = $1,500 billion Given these data, calculate the amount of the monetary base: BASE = $650 billion Calculate the quantity of the money supply: M = $2,000 billion Calculate the ratio of reserves to deposits: (carry out to four decimals) RES = 0.1000 Calculate the ratio of currency to deposits: CU = 0.3333 (carry out to four decimals) Calculate the money multiplier: mm = 3.3333 (carry out to four decimals) Now, suppose a shock causes banks to change the amount of reserves they hold relative to deposits, so that res changes from 0.0500 to 0.0550. Suppose that when this happens, both cu and BASE do not change. However, the change in res will affect mm, M, CU, RES, and DEP. Calculate the new value of the money multiplier: mm = 3.6364 (carry out to four decimals) Now, calculate the new value of the money supply: M = $2,200 billion Very challenging: Calculate the new amount of bank deposits: DEP = $1,818.18 billion Find the new total amount of currency held by the non-bank public: CU = $600 billion Calculate the new amount of bank reserves: RES = $200 billion
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