Eco 4081 Week 2 Study Guide
ECON 4081 Problem Set Two
1
Money Supply = m x Monetary base m = (1+cr)/(cr + rr) a. cr = 1; rr = 0; MS1 = $1000 (2/1) = $2000 b. cr = 0; rr = 1; MS2 = $1000 (1/1) = $1000 c. cr = 0; rr = 0.2; MS3 = $1000 (1/0.2) = $5000 d. cr = 1; rr = 0.2; MS4 = $500 (2/1.2)= $5000/3 = 1666.67 e. Expected Money Supply = (1+10%) Money Supply a: MS’ = 1.1 MS = $2200, $2200 = 2 Monetary base’; Monetary base’ = $1100,so monetary base should increase $100; b: MS’ = 1.1 MS = $1100, $1100 = Monetary base’; monetary base’ = $1100, so monetary base should increase $100; c: MS’ = 1.1 MS = $5500, $5500 = 5 Monetary base’; Monetary base’ = $1100, so monetary base should increase $100; d: MS’ = 1.1 MS = $1833.33, $1833.33 = (2/1.2) Monetary …show more content…
Money multiplier = (1+cr) / (cr + rr), as currency-deposit ratio increases, reserve-deposit ratio keep constant, according to the Table 4-2 in Case Study, it shows the money multiplier: m’ = (1+ 0.41) / (0.41 + 0.14) = 2.56, the money multiplier …show more content…
In my opinion, both of reserve-deposit ratio and currency-deposit ratio’s change could contribute for the fall in the money supply.
3 a. The cost of inflation arises because high inflation let firms to change their posted prices. It is menu costs. Higher rate of inflation, then faster to renew the menu in restaurant. b. The cost of inflation that the inconvenience of living in a world with a changing price level. The economic transactions are changing with inflation, and it could influences the value of money. So changing value of money required us correct with the inflation in different times. It is personal financial planning. d. The cost of inflation results from the tax laws. Many taxes do not consider about the effect of inflation, and it could change individual’s tax liability. Inflation rate could let the real tax real increases when inflation rate increases. So people have to pay more than what they need to pay without inflation.
4
Steady state: the number of residents involved must equal to the number of residents uninvolved every
1
Money Supply = m x Monetary base m = (1+cr)/(cr + rr) a. cr = 1; rr = 0; MS1 = $1000 (2/1) = $2000 b. cr = 0; rr = 1; MS2 = $1000 (1/1) = $1000 c. cr = 0; rr = 0.2; MS3 = $1000 (1/0.2) = $5000 d. cr = 1; rr = 0.2; MS4 = $500 (2/1.2)= $5000/3 = 1666.67 e. Expected Money Supply = (1+10%) Money Supply a: MS’ = 1.1 MS = $2200, $2200 = 2 Monetary base’; Monetary base’ = $1100,so monetary base should increase $100; b: MS’ = 1.1 MS = $1100, $1100 = Monetary base’; monetary base’ = $1100, so monetary base should increase $100; c: MS’ = 1.1 MS = $5500, $5500 = 5 Monetary base’; Monetary base’ = $1100, so monetary base should increase $100; d: MS’ = 1.1 MS = $1833.33, $1833.33 = (2/1.2) Monetary …show more content…
Money multiplier = (1+cr) / (cr + rr), as currency-deposit ratio increases, reserve-deposit ratio keep constant, according to the Table 4-2 in Case Study, it shows the money multiplier: m’ = (1+ 0.41) / (0.41 + 0.14) = 2.56, the money multiplier …show more content…
In my opinion, both of reserve-deposit ratio and currency-deposit ratio’s change could contribute for the fall in the money supply.
3 a. The cost of inflation arises because high inflation let firms to change their posted prices. It is menu costs. Higher rate of inflation, then faster to renew the menu in restaurant. b. The cost of inflation that the inconvenience of living in a world with a changing price level. The economic transactions are changing with inflation, and it could influences the value of money. So changing value of money required us correct with the inflation in different times. It is personal financial planning. d. The cost of inflation results from the tax laws. Many taxes do not consider about the effect of inflation, and it could change individual’s tax liability. Inflation rate could let the real tax real increases when inflation rate increases. So people have to pay more than what they need to pay without inflation.
4
Steady state: the number of residents involved must equal to the number of residents uninvolved every