In what special case would it equal 1?

b. The initial money supply is $1,000, of which $500 is currency held by the public.

The desired reserve-deposit ratio is 0.2. Find the increase in money supply associated with increases in bank reserves of $1, $5, and $10. What is the money multiplier in this economy?

c. Find a general rule for calculating the money multiplier.

d. Suppose the Fed wanted to reduce the money multiplier, perhaps because it believes that change would give it more precise control over the money supply.

What action could the Fed take to achieve its goal?

5 . Consider a country in which real GDP is $8 trillion, nominal GDP is $10 trillion, M1 is $2 trillion, and M2 is $5 trillion. (LO4)

a. Find velocity for M1 and for M2.

b. Show that the quantity equation holds for both M1 and M2.