Questions about monetray base and the money supply i. Find M1 and numerical valu

Question

Questions about monetray base and the money supply

i. Find M1 and numerical values of its components from the data above

ii. Find Monetary Base and numerical values of its components from the data above

iii. Find the numerical values of reserves and its components from the data above

b)Using the data above, find the MAXIUMUM that money supply could increase based on an increase in reserves of 10$B. What assumptions are necessary for this increase to be realized in its totality?

c) Find the value of the true money multiplier, making sure to clearly identify each of its components

d) Calculate the expected increase in money supply based on increase in 10$B in reserves. What accounts for the difference between your answer here and in part (b)?

Data are in $ billion Required Reserves Vault Cash Reserves at Fed Monetary Base Deposits M1 M2 60.6 37.9 27.8 397.9 810.5 11141.7 3490.6

Explanation / Answer

M1 = 11141.7

monetary base = 397.9

money supply = in crease in reserve by $ 10 this means that the required reserves with banks will fall by $ 10 sso new reserves with the banks will $ 50.6

Multiplier m = M/H

= 397.9/ DD+RR = 397.9 / 871.1 = 0.45

The expected increase in money supply = m(multiplier ) * Increase in supply

= 0.45 * 10 = 4.5

Then reserves are 27.8 + 4.5 = $ 32.3

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