Suppose That in Mysore,the Reserve-Deposit Ratio Is Res = 0

question 11

Multiple Choice

Suppose that in Mysore,the reserve-deposit ratio is res = 0.5 - 2i,where i is the nominal interest rate.The current-deposit ratio is 0.2 and the monetary base equals 100.The real quantity of money demanded is given by the money demand function L(Y,i) = 0.5Y - 10i,where Y is real output.Currently,the real interest rate is 5% and the economy expects an inflation rate of 5%.The money supply equals

• A)200.
• B)240.
• C)300.
• D)400.

---

Definitions:

Wage and Price Controls

Government-imposed restrictions on the levels at which wages and prices can be set, usually to control inflation.

Inflation

A general increase in prices and decrease in the purchasing value of money.

Pure Capitalist Economy

An economic system characterized by private ownership of resources and the use of market mechanisms to allocate goods and services with minimal government intervention.

Government Role

The activities, responsibilities, and powers of a government in shaping society, economy, and ensuring public welfare.