Suppose the Reserve-Deposit Ratio Is

question 66

Essay

Suppose the reserve-deposit ratio is
res = 0.5 - 2 i,
where i is the nominal interest rate.The currency-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 - 10 i,
where Y is real output.Currently the real interest rate is 5% and the economy expects an inflation rate of 5%.Assume the price level P is equal to 1.
(a)Calculate the money multiplier.
(b)Calculate the reserve-deposit ratio.
(c)Calculate the money supply.
(d)Calculate the value of output Y that clears the asset market.

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Definitions:

Prisoners' Dilemma

A concept in game theory where two individuals acting in their own self-interest do not produce the optimal outcome, demonstrating the conflict between individual and collective rationality.

Strategic Behavior

Actions taken by a firm that attempt to influence the future behavior of other firms.

Cartel

An alliance of firms that coordinate their actions to control the supply of a product or service, thus influencing the market price.

Marginal Cost

The hike in total costs linked to the creation of one more unit of a product or service.