1(ii) From the multiplier model of the BROADLY-DEFINED money supply (M2) discussed in class, find the relevant equations to express: (a) the equilibrium level of demand deposits (D), term deposits (T), the amount of total bank deposits [T+D], the equilibrium values of the monetary base (MB), the narrowly-defined money supply (M1) and the broadly- defined money supply (M2); the amount of total bank reserves (BCRy), the currency holdings of the non-bank public (C); the amount of bank loans (BL); and the narrow (mm1)and broad (mm2) money multipliers. (5 points) Now, suppose in the banking system of this hypothetical economy in which, at a given price level, the narrowly defined money supply (M1) in existence is $22550 million, the cash reserve ratio against demand deposits (rp) is 10%, the cash reserve ratio against term deposits (r;) is 3%, the term deposit ratio (t) is 90%, the currency/deposit ratio (c) is 25%, the idle excess reserves/deposit ratios for demand (ep) and term deposits (er) are equal to 2% and 1% respectively. If this economy faces serious inflationary pressures and this causes the monetary authorities to implement a monetary and fiscal policy package that results in a decrease in the monetary base by 30% whilst the currency/deposit ratio increases by only 15%, because of an increase in taxes. (a). Other things being equal, calculate the percentage changes in the equilibrium values of M1, M2, C, and (BCR1), and, (b). Under specified assumptions, illustrate and explain the effects of the total policy package on the equilibrium level of the broad money supply (M2). (30 points). (c) Under the relevant assumptions, use the Keynesian IS(GT)/LM framework to illustrate and explain the short run effects of the total policv nackage on the general eauilibrium level of income (Y) and the (c) Under the relevant assumptions, use the Keynesian IS(GT)/LM framework to illustrate and explain the short run effects of the total policy package on the general equilibrium level of income (Y) and the level of the interest rate (R) in this economy. (5 points) (d) Under the relevant assumptions, use the Monetarist IS(GT)/LM framework to illustrate and explain the long run effects of the total policy package on the general equilibrium level of income (Y) and the level of the interest rate (R) in this economy. (5 points) (e). If the private deposit-taking institutions (i.e., the banks) had INSTEAD agreed to increase BOTH their desired idle excess cash reserves against both demand and term deposits by 30% each, what would have been the percentage change in the broad money supply, resulting from this NEW POLICY PACKAGE? Illustrate your answer with the appropriate diagram and briefly comment on which of the two policy packages you would prefer as an economic advisor. (10 points) (c) Lastly, suppose the banks hold borrowed reserves (BR) in this economy according to the following relation: (BR)/(MB) = 0.5[R - b]. where R and b, are respectively the market interest rate and the bank rate (measured in fractional units) and MB is the initial value of the monetary base. If the bank rate is 3.5 per cent and the market rate of interest is 4 per cent, calculate the percentage changes in the values of borrowed reserves (BR) AND non-borrowed reserves (NBR) after the implementation of the policy package. (10 points)