Money Supply Problem

You are hired by the Chair of the Federal Reserve to manage the trading desk at the New York Fed and the Chair tells you that he wants you to increase the money supply (M1) by 33.33 percent. They warn you to be careful because in these uncertain times, the money multiplier tends to become very unstable. They suggest that you stay 'closely connected' with the banking sector and then gives you a list of phone numbers to do so. Note that in this problem we are targeting the growth rate of M1.

Reserve Market Initial Conditions (Scenario A)

rr/D= .10

C = 500 billion

D = 2000 billion

ER = 0 (not a typo)

M = C + D

1) What is the MB?

2)What is the money multiplier? Round to 4 decimal places.

3)What is the money supply? Use mm x MB to calculate this. Round to the nearest whole number.