Suppose the central bank sets the reserve requirement ratio at 5 percent. The maximum the central bank
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Suppose the central bank sets the reserve requirement ratio at 5 percent. The maximum the central bank is willing to lend is 25 percent of required reserves, charging the gross real return of 1 on discount window loans. We assume the gross real return on fiat money is 1.02 and the gross real return on capital is 1.08.
a. What is the gross real return on deposits?
b. If the supply of fiat money is $10,000, what is the quantity of M1 in this economy?
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a 005 and using equation 918 the gross real return on deposits is reserve requireme...View the full answer
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Related Book For 
Modeling Monetary Economies
ISBN: 978-1107145221
4th Edition
Authors: Bruce Champ, Scott Freeman, Joseph Haslag
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