Only Do Parts E AND F Savings deposits = $2221.5b Demand Deposits = $1880.6b Req

ID: 2428282 • Letter: O

Question

Only Do Parts E AND F

Savings deposits = $2221.5b Demand Deposits = $1880.6b

Required reserve ratio = 9% Currency in circulation = $1100.0b

Vault Cash = $91.5b Household money market mutual fund = $1753.3b

Certificates of deposit (value< $100,000) = $2450.0b Banking system deposits with the Fed = $208.2b

Household money market deposits accounts = $1588b Certificates of deposit (value > $100,000) = $4827.6b

Institutional money market accounts = $3864.3b Treasury Bills = $458.3b

a. Calculate the MB.

b. Calculate m1 as illustrated in practice problems. Interpret the multiplier.

c. Calculate M1 using the multiplier method.

d. Check using the definition of M1 method.

e. Repeat parts b-d for M2.

f. Suggest a specific action by the Federal Reserve if the macroeconomic models suggest that a $550 billion dollar increase

in the M2 money supply is required to bring the economy back to a full employment equilibrium.

a) MB is the monetary base

= savins deposit+demand deposit+Currency in circulation+vault cash+banking system deposit with fed+Certificates of deposit (value< $100,000)

= 2221.5+1880.6+1100++91.5+208.2+2450

= 7951.8b$

b) m1 = 1 + (C/D)/[rr + (ER/D) + (C/D)].

= 1+(1100/1880.6) / [0.09+ (208.2/1880.6)+(1100/1880.6)]

= 1.58/ 1.78

= 0.88

c) M1= monetary base money multiplier

= 7951.80.88

= 6997.587

d) M1= demand deposit+Currency in circulation+vault cash+banking system deposit with fed+Household money market deposits accounts

= 1880.6+1100++91.5+208.2+1588

= 4868.3

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