The demand for money in Kryptonia is given by Md 1000 10000r P Y Everything is expressed in millions of Krypton, the currency of Kryptonia Keep in mind that 1 billion is equal to 1000 million Assume that nominal income is initially 7 billion Krypton There were 3 changes Suppose the money supply (Ms) is set by the Central Bank at 7 billion Krypton What is the equilibrium rate of interest The government of Kryptionia has increased education expenditures and this has resulted in an increase of nominal income from 7 billion Krypton to 8 billion Krypton What happens to the equilibrium interest rate The government of Kryptonia wants to avoid any crowding out effect on investment and asks the Central Bank to intervene The Central Bank replies that they will change the required reserve ratio Assume that the banking industry is loaned up and thereserve requirement was initially 10 By how much should the Central Bank change the required reserve ratio to keep the level of investment in Kryptonia the same QUESTION After the increase in nominal income and change in the required reserve ratio described in questions b and c, the central bank decides to sell 4 375 million Krypton worth of government securities to the public What is the potential impact of this action on the money supply and the interest rate

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jun 24, 2024

The demand for money in Kryptonia is given by: Md= 1000- 10000r + P Y Everything is expressed in millions of Krypton, the currency of

The demand for money in Kryptonia is given by:

Md= 1000- 10000r + P Y

Everything is expressed in millions of Krypton, the currency of Kryptonia. Keep in mind that 1 billion is equal to 1000 million.

Assume that nominal income is initially 7 billion Krypton.

There were 3 changes:

Suppose the money supply (Ms) is set by the Central Bank at 7 billion Krypton. What is the equilibrium rate of interest?
The government of Kryptionia has increased education expenditures and this has resulted in an increase of nominal income from 7 billion Krypton to 8 billion Krypton. What happens to the equilibrium interest rate?
The government of Kryptonia wants to avoid any crowding-out effect on investment and asks the Central Bank to intervene. The Central Bank replies that they will change the required reserve ratio.Assume that the banking industry is "loaned up" and thereserve requirement was initially 10 %. By how much should the Central Bank change the required reserve ratio to keep the level of investment in Kryptonia the same?

QUESTION: After the increase in nominal income and change in the required reserve ratio described in questions b and c, the central bank decides to sell 4.375 million Krypton worth of government securities to the public. What is the potential impact of this action on the money supply and the interest rate?