Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Question 1 (9 points) Imagine a fictional country called the City of Brightness. Suppose we have the following information forthe City of Brightness: Individuals and
Question 1 (9 points) Imagine a fictional country called the City of Brightness. Suppose we have the following information forthe City of Brightness: Individuals and businesses hold: 100 billion in currency 2,000 billion in chequable deposits 10,000 billion in non-chequable deposits 1,500 billion in fixed term and other deposits. Banks in the City of Brightness held: 900 billion in notes and coins 200 billion in reserves at the central bank 1,600 billion in loans to households and businesses. a) Calculate the monetary base, thecurrency drain ratio, M1, and money multiplier (using M1) for the City of Brightness. b) Suppose that piano teachers, and manysmall businesses, begin accepting credit cards as a method of payment, so desired currency holding falls. Assume all else remains constant. Explain what will happen to the currency drain ratio and the M1 money multiplier. c) Explain the three primary functions of money, over and above its role as a means of payment. Question 1 (9 points) Imagine a fictional country called the City of Brightness. Suppose we have the following information forthe City of Brightness: Individuals and businesses hold: 100 billion in currency 2,000 billion in chequable deposits 10,000 billion in non-chequable deposits 1,500 billion in fixed term and other deposits. Banks in the City of Brightness held: 900 billion in notes and coins 200 billion in reserves at the central bank 1,600 billion in loans to households and businesses. a) Calculate the monetary base, thecurrency drain ratio, M1, and money multiplier (using M1) for the City of Brightness. b) Suppose that piano teachers, and manysmall businesses, begin accepting credit cards as a method of payment, so desired currency holding falls. Assume all else remains constant. Explain what will happen to the currency drain ratio and the M1 money multiplier. c) Explain the three primary functions of money, over and above its role as a means of payment
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started