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Hello, I would like the answer to this question please, question 1 Part A, until third phase. Greatly appreciate!!!! QUESTION 1: Suppose the behavior of
Hello, I would like the answer to this question please, question 1 Part A, until third phase. Greatly appreciate!!!!
QUESTION 1: Suppose the behavior of the broad-money supply process in the banking system of a hypothetical economy is characterized by the following supply (Rs) and demand for cash reserves (Rd) model [in which all the relevant variables are as defined in class]: Rs = MB = Rd = C + BCRT (equilibrium condition); BCRT = RR + ER (definition of total bank reserves) C = 0.30D (currency holdings of the non-bank public) RR = RRd + RRt total desired cash reserves against bank deposits] RRd = 0.05D (desired cash reserves against demand deposits) RRt = 0.02T (desired cash reserves against term deposits) T = 0.8D (definition of term deposits) ER = ERd + ERt [total idle excess reserves held against bank deposits] ERd = 0.002D(idle excess reserves held against demand deposits) ERt = 0.001T (idle excess reserves held against term deposits). NARROWLY DEFINED MONEY SUPPLY [M1 ] IN EXISTENCE = $2550 million.(1). With the information provided above, use the money supply-model [discussed in class] to, first, solve the model to find expressions for the equilibrium values of demand deposits and the money supply [narrowly defined as M1]. Then, use any of the two equations to determine the value of the initial monetary base, and the value of the broadly defined money supply (M2). (10 marks). (11). Given that this economy is facing severe unemployment pressures, the monetary authorities adopt a macroeconomic policy package consisting of monetary policy and fiscal policy. The implementation process takes place in three phases. PHASE ONE [EXPANSIONARY MONETARY POLICY] In the first phase, the central bank implements an expansionary unconventional monetary policy by purchasing both private sector and federal government securities [long- term] in the financial market worth $500 million. Show and calculate the percentage changes in the equilibrium values of the narrow (M1) and broad money (M2) supplies because of the central bank's policy stance. Explain and illustrate your answers with the appropriate diagrams. (iii). PHASE TWO [EXPANSIONARY FISCAL POLICY] In the second phase, calculate the percentage changes in the equilibrium values of both the narrowly defined and broadly defined money supply if the central government had used INSTEAD an expansionary fiscal policy to stimulate the economy by decreasing taxes and, as an indirect effect, the currency/deposit ratio (), had dropped to 20%. Explain and illustrate your answers with the appropriate diagrams, where necessary. (15 marks). (iv). Which of the two policies will have the most effect on the equilibrium interest rate in the short run? Why? Explain and illustrate your answers with the appropriate diagrams [where necessary]. (v). THIRD PHASE: [THE MIXED POLICY PACKAGE: EXPANSIONARY MONETARY POLICY & EXPANSIONARY FISCAL POLICY]. In the third phase, if BOTH POLICIES are used SIMULTANEOUSLY to deal with the problem in this economy, calculate the percentage changes in (a) the monetary base; (b) total bank reserves; (c) the narrow money supply; and (d) the broad money supply. lllustrate your answer with the appropriate diagrams and comment on your calculated answers. (20 points). PART B: Do all questions for 30 points. QUESTION 2: Briefly describe your understanding of the nature and significance of constrained discretion. 10 points)Step by Step Solution
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