1(a). First, explain the concept of the money multiplier. Then from the information that the narrow money supply (MI) in a hypothetical Canadian economy [with a competitive banking system in which banks produce only demand deposits] is $1750 million and the idle excess reserves drain coefficient (e) is 39%, the desired cash reserve ratio (r) for demand deposits is 8%, and the currency/deposit ratio (c) is 30%, apply the multiplier model discussed in class or chapter 15 of the textbook to determine and calculate: (1). The equilibrium level of the monetary base (MB); (ii) the equilibrium level of demand [chequable] deposits (D); (iii) the total amount of cash reserves held by banks (BCR), the amount of currency (C) held by the non-bank public; (iv) the amount of bank loans (BL) and ( v ) the values of the deposit multiplier (dm) and the money multiplier (mm). Lastly, (vi) Use diagrams to ILLUSTRATE your answers, where necessary. (10 marks) 1(b). If the economy, however, faces a situation of inflationary pressures, and the monetary authorities implement a macroeconomic policy package (consisting of both contractionary monetary policy and contractionary fiscal policy) to respectively decrease the monetary base by 259% and increase taxes which, in turn, causes the currency/deposit ratio to increase by 259%. Other things being equal, (1) calculate the percentage change in the equilibrium level of the money supply after the total policy change and illustrate your answer with an appropriate diagram. (10 arks) 1( c ). Now, assume that the money demand function in the above economy stays the same after the policy change. (ii) What is the expected short-run effect of the total change in the money supply on the equilibrium interest rate of this economy? Explain carefully and illustrate with appropriate diagram(s); (iii) what is the expected short-run effect on the equilibrium levels of income, employment, and the domestic exchange rate? Explain carefully and use diagrams to illustrate your answers, where necessary. (5 marks). 1(d). If you were an economic advisor, what policy package would you have INSTEAD recommended to deal with the macroeconomic problem stated in the above question? Explain and DEFEND your