Question

Suppose that r = required reserve ratio = 0.20 c = {C/D} = currency ratio = 0.45 e = {ER/D} = excess reserves ratio = 0.01 t = {T/D} = time deposit ratio = 1 mm = {MM/D} = money market fund ratio = 0.70 MB = the monetary base = $1,000 billion 1 + C + + mm Given that the formula for the M2 money multiplier is m, = - -, find the value for the M2 money supply. "2 r + e + C The M2 money supply is $ billion. (Round your response to the nearest whole number.) Use the M2 money multiplier to find the new value for the money supply if open market operations increase the monetary base by $100 billion. The M2 money supply is now $ billion. (Round your response to the nearest whole number.)

Answer 1

h = 0.2 C 0.45 e= 0.01 th mm - 0.7 MB - $1000 Billion Money Pultiplies (m₂) 2 It c+t+ mm яне+ бе 22 +0.45+1+0.7 0.2 +0.01 + 0.45 105 - Since MB = 1000 Billion M2. Money supply Ma x MB 105 X 1000 Billion 2 22 2 4772 M₂ Honey Supply = 4773 Billion, - Increase in Monetary bare = $100 Billion So Increare in H₂ Honey Sepplys 105 100 Billion = 477 Billion M₂ Money supply is Now (4773 +477) Billion Cambewoney Supply is Now - 5450 Billion