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Calculate the currency-to-deposit ratio (cr), and the money multiplier (m) given the following values:

Question # 00025987
Subject: Economics
Due on: 01/31/2015
Posted On: 09/15/2014 11:48 AM
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Problem 8
A. Calculate the currency-to-deposit ratio (cr), and the money multiplier (m) given the following values:

rr = 0.20 C = $320 billion D = $1,000 billion

B. Calculate total required reserves (RR), total actual reserves (AR) and the monetary base (MB).
B. Now assume the FED lowers the required reserve ratio to 0.10. Calculate the new money multiplier (mm’) and the new money supply (M1).
C. Calculate the new level of deposits (D’) and currency in circulation (C).
D. Calculate the new level of required reserves (RR’) and excess reserves (ER’).

Problem 9
Consider an economy with no income taxes, and where the mpc (c) = 0.75.

A. What is the value of the multiplier associated with autonomous spending?
B. How much will output in this economy change if government expenditures are decreased by$500?
C. How much will output in this economy change if government transfers are decreased by $500?
D. What explains the difference in your answers (if any) between part (b) and part (c) of this problem?

Problem10
Now suppose that in the economy described in problem #9 above the government imposes a proportional income tax, t = 1/4 (or, t = 0.25) and the mpc remains 0.75.

A. What is the value of the multiplier now?
B. How much will output in this economy change if government spending decreases by $500?
C. How will the change in government spending in this model affect the budget surplus or deficit(that is, what is the change in BD or BS) due to the $500 decrease in government spending?
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Calculate the currency-to-deposit ratio (cr), and the money multiplier (m) given the following values

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Tutorial Preview …Calculate xxx new xxxxx of deposits xxxxxx and currency xx circulation xxx xxxxxxxxxx level xx deposits = xxxxxxxxxxxxxxx in circulation x $320D xxxxxxxxx xxx new xxxxx of required xxxxxxxx (RR’) and xxxxxx reserves xxxxxxx xxx level xx required reserves x $1,000 * x 10 x xxxx billionExcess xxxxxxxx = $10,000 x $100 = xxxx billionProblem xxxxxxxxx xx economy xxxx no income xxxxxx and where xxx mpc xxx x 0 xx A What xx the value xx the xxxxxxxxxx xxxxxxxxxx with xxxxxxxxxx spending?Answer:MPC = x 75Autonomous spending xxxxxxxxxx = x x (1- xxxxxxxxxxxxxx spending multiplier x 1 / x 25 x xx How xxxx will output xx this economy xxxxxx if xxxxxxxxxx xxxxxxxxxxxx are xxxxxxxxxxxxxxxxxxxxxxxxxx = change xx C / xxxxxx in xxxxxxx xx = xxxx / change xx outputChange in xxxxxx = x xxx 67C …
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Money_Multiplier_Assignment_(1).docx (14.13 KB)
Preview: level xx deposits x $10,000 Currency xx circulation = xxxxx Calculate xxx xxx level xx required reserves xxxxxxx and excess xxxxxxxx (ER’) xxx xxxxx of xxxxxxxx reserves = xxxxxx * 0 xx = xxxx xxxxxxxxxxxxx reserves x $10,000 - xxxx = $900 xxxxxxx Problem xxxxxxxxx xx economy xxxx no income xxxxxx and where xxx mpc xxx x 0 xx A What xx the value xx the xxxxxxxxxx xxxxxxxxxx with xxxxxxxxxx spending?Answer:MPC = x 75Autonomous spending xxxxxxxxxx = x x (1- xxxxxxxxxxxxxx spending multiplier x 1 / x 25 x xx How xxxx will output xx this economy xxxxxx if xxxxxxxxxx xxxxxxxxxxxx are xxxxxxxxx by$500?Answer: MPC x change in x / xxxxxx xx Output0 xx = $500 x change in xxxxxx Change xx xxxxxx = x 666 67C xxx much will xxxxxx in xxxx xxxxxxx change xx government transfers xxx.....
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