Suppose the reserve-deposit ratio is res = 0.5 - 2 i,where i is the nominal interest rate. The currency-deposit ratio is 0.2 and the monetary base equals 100. The real quantity of money demanded is given by the money demand function L(Y, i) = 0.5Y - 10 i,where Y is real output. Currently the real interest rate is 5% and the economy expects an inflation rate of 5%. Assume the price level P is equal to 1.(a)Calculate the money multiplier.(b)Calculate the reserve-deposit ratio.(c)Calculate the money supply.(d)Calculate the value of output Y that clears the asset market.
What will be an ideal response?
| (a) | 2.4 |
| (b) | 0.3 |
| (c) | 240 |
| (d) | 482 |
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Let S = y - (100 + 0.5y). Assume no government or foreign sectors. At the equilibrium level of income, y* = 800, the level of saving is
A) 0. B) 50. C) 100. D) 300.
Explain the following figure
What will be an ideal response?
Positive analysis can be described as
A) the study of whether people respond to positive incentives. B) the study of whether people respond to negative incentives. C) a value-free approach to inquiry. D) a study that is not tested empirically.
Fiscal restraint is
A. Tax cuts or spending increases meant to reduce aggregate demand. B. Changes in taxes and spending intended to increase aggregate supply. C. Tax hikes and/or spending cuts intended to reduce aggregate demand. D. Not possible because Congress continues to spend too much money.