Unemployment rate: > 8.5% Velocity of money = 6 Price Level = 1.5 RealGDP = $3,2

ID: 1117372 • Letter: U

Question

Unemployment rate: > 8.5%

Velocity of money = 6

Price Level = 1.5

RealGDP = $3,200

Total Bank Reserves in banking system: $ 80

Amount of Total Bank Reserves that are “excess reserves”: $ 0

Total checkable deposits in banking system: $ 400

Estimate of RealGDP if full employment existed: $3,500

QUESTIONS:

1) What is nominal GDP for Owenia?

2) How much money (M1) is in circulation in Owenia?

3) What is the required reserve ratio that has been set by the central bank?

4) What is the theoretical maximum money multiplier (assuming that all excess reserves get loaned and new loans become new deposits)?

Nominal GDP = 3200*1.5 = $4800

2. M1 = Currency held by people + Checkable Deposits

M1 = (4800/6) + 400 = 1200

3. Required Reserve ratio = Total Reserves/Money supply

= 80/1200 = 0.06 or 6%

4. Money multiplier = 1/Required reserve ratio

=1/0.06 = 16.67

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