1. [2 pts.]Use the definition of money multiplier derived in equations (14.4) and (14.5) and equal to (cu + 1)/(cu + res). Applying the figures from Table 14.1 (cu = 0.1219 and res = 0.2462), check first that the money multiplier equals 3.05. Then make the following changes in turn and recalculate the money multiplier:
2. cu goes up to 0.25 and res remains unchanged atres = 0.2462.
3. res goes up to 0.40 and cu remains unchanged atcu = 0.1219.
4. What happened economically in both cases? Explain using the fact that both ratios go up and what do these increases mean for the economy.