Consider an economy as explained in Chapter 10, in which people wish to hold bank checking deposits worth a total of 10 million goods and currency worth 4 million goods in every period. In addition, there is a stock of unintermediated capital worth 20 million goods. Fiat money is the only asset used as currency. Deposits at banks are subject to a reserve requirement of 10 percent. After meeting the reserve requirement, banks invest the remainder of all deposits into capital. The monetary base is $2 million. (Hint: The key to this exercise is to understand the difference between inside and outside money.)

a.Find the value (in goods) of a dollar.

b.Find the total nominal money stock as measured by the definition of M1.

c.Find the money multiplier.

d.Find the total capital stock.

e.Find the currency-deposit ratio,