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# Assume the following money supply information and use as needed for all parts of this problem.

Question # 00025985
Subject: Economics
Due on: 01/31/2015
Posted On: 09/15/2014 11:41 AM

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Question
Assume the following money supply information and use as needed for all parts of this problem.

Currency in circulation (CU, in \$) 75
Deposits (D, in \$) 200
The required reserve ratio (rr, in %) rr = 0.14
High-powered money (monetary base, B, in \$) 102

A. Using the information given, what is the value of the money multiplier, m?
B. What is the level of the M1 stock of money?
C. Suppose the public’s holding of currency increases to \$100 while, at the same time, the level of deposits remain constant at \$200. What is the value of the new money multiplier (m’)? If the FED wishes to hold the M1 supply of money equal to the value obtained in Part (ii) above, by how much must the FED change the monetary base (?B), and in which direction, as a result of the newmoneymultiplier (m’)?

Problem 2
Through the application of Okun’s Law, if the FRED reduces the money supply by 5 percent and the quantity theory of money is true, then by how much would you predict the unemployment rate to change in the short-run? Continuing with this situation, by how much would you predict the unemployment rate to change in the long-run (compared to its original short-run level)?
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#### Assume the following money supply information and use as needed for all parts of this problem

Tutorial # 00025366
Posted On: 09/15/2014 11:42 AM
Posted By:
jia_andy
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Tutorial Preview …Assume xxx following…
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Preview: currency xxxxxxxxx to xxxx while, at xxx same time, xxx level xx xxxxxxxx remain xxxxxxxx at \$200 xx know that xxxxx multiplier xxxxxxx xx required xxxxxxx ratio Here xxxxxxx ratio has xxx changed xxxxx xxx currency xx circulation has xxxxxxx Therefore, the xxxxx of xxxxx xxxxxxxxxx will xxx change If xxx FED wishes xx hold xxx xx supply xx money equal xx the value xxxxxxxx in xxxx xxxx above, xxxx the FED xxxxxx the monetary xxxx (?B) xx xxxx – xxx = \$25In xxxxx words, the xxxx has xx xxxxxxxx the xxxxxxxx base by.....
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