The money multiplier. Suppose that the currency-deposit ratio (c) is 50%, the required reserve ratio (rrD) is 10%, and the excess reserve ratio (e) is 105%. The monetary base is by $4.4 t. Round your answers to two decimal places. (4 points per blank.)
Hint: use the money multiplier formula (final version).
Hint: Use the identities M1 = C + D and C = cD to solve for D and then for C, then use the C you found with the identity B = C + R to solve for R.
Suppose now that the excess reserve ratio falls to 60%, other ratios and the monetary base remain the same, and the money-supply process runs its course.
2. Current data. Consider the following data for 31 March 2017. (5 points per blank)
B $3746 b
M1 $3445 b
Y $18,869 b
3. The equation of exchange and inflation; see lecture notes to Unit 14.
Fill in the blanks using the equation of exchange MV = Py and the definition Py = Y. Round answers to two decimal places. (4 points per blank)
case M V P y Y
1 ___ 5 ___ 400 640
2 144 5 ___ 400 ___
2. The equation of exchange and inflation; see lecture notes to Unit 14.
a. Fill in the blanks (3.5 points each). Use the equation of exchange MV = Py and the definition Py = Y. Round answers to two decimal places.
case M V P y Y
1 ___ 5 ___ 400 640
2 144 5 ___ 400 ___
b. If “case 1” is the US in 2014, and “case 2” is the US one year later, what is the inflation rate over that year? Measure it as the change in P divided by the original P.
ΔP/P = ____%