Suppose that the reserve ratio is given by: re=0.4-2r, where r is the interest rate The currency-deposit ratio (cu) is 0.4 and the monetary base (H)is 60. The money

1

demand(L) is given by:

L=0.5y-1r

a)If r=0. 1, what are the reserve ratio, the money multiplier(mm)and the money supply(i.e M. And, M=mm H) For what level of total output Y, does an

where Y is total output

interest rate of 0. 1 clear the money market(i. e money supply= money

demand)

b)Repeat part a)forr=0.05.

Assume that the reserve ratio is fixed at the value you found in part a)and is not affected by interest rate. Furthermore, cu=0.4 and H=60. If r=0.05, for what level of total output, Y, does the money market clear in this case

1. Suppose that the reserve ratio is given by: re = 0.4 2r, where r is the inter The currency deposit ratio (cu) is 0.4 and the monetary base (H) is 60. The money demand (L) is given by: L = 0.5Y - 100 where Y is total output. a) Ifr=0.1, what are the reserve ratio, the money multiplier (mm) and the money supply (ie. M. And, M = mm x H.) ? For what level of total output Y, does an interest rate of 0.1 clear the money market (i.e. money supply = money demand)? b) Repeat part a) for r = 0.05. c) Assume that the reserve ratio is fixed at the value you found in part a) and is not level of total output, Y, does the money market clear in this case ? affected by interest rate. Furthermore, cu = 0.4 and H = 60. If r = 0.05, for what