What is the simple money multiplier if the required reserve ratio is 15%?
Problem: answer the following questions. Show your work and clearly indicate your answer to each part of the question.
- Suppose that you take $150 in currency out of your pocket and deposit it in your checking account. Assuming a required reserve ratio of 10%, what is the largest amount by which the money supply can increase as a result of your action?
- What is the simple money multiplier if the required reserve ratio is 15%? If it is 12.5%
- Let’s say you graduate from college and accept a job in 2018. You decide to compare your starting salary with your grandfather’s and mother’s starting salaries. The salaries you compare are:
- You: $80,000 per year beginning in 2018
- Your mother: $50,000 per year beginning in 1983
- Your grandfather: $20,000 per year beginning in 1965
To compare these salaries, you decide to use the CPI, using 1983 as the base year.
a. Why is the CPI a good price index to use for this comparison?
b. Fill in the missing data point in the following table:
| Year |
CPI |
| 1965 |
30 |
| 1983 |
|
| 2015 |
238 |
| 2018 |
240 |
- Convert both your mother’s salary and your grandfather’s salary to 2018 dollars. Enter your answers in the table below.
Grandfather’s 1965 salary in
2018 dollars |
|
Mother’s 1983 salary in 2018
dollars |
|
- The Ragged Mountain Running Shop (RMRS) sells running shoes and apparel in Charlottesville, Virginia. The owners of RMRS are considering the possibility of opening new retail locations. After careful market analysis, they estimate the expected returns at five new potential locations. These estimates are listed in the following table, along with the amount RMRS would need to borrow in order to open each location:
| Crozet |
6% |
$100,000 |
| Downtown Charlottesville |
4% |
$100,000 |
| Harrisonburg |
11% |
$80,000 |
| Waynesboro |
2% |
$60,000 |
| West End of Richmond |
8% |
$200,000 |
- RMRS approaches the Virginia National Bank (VNB) with hopes of borrowing to expand into other locations. Which locations will RMRS open if VNB offers them a loan at an interest rate of 7%? What if VNB offers loans at a lower interest rate of 5%?
- What is the total dollar amount of loans that RMRS takes at an interest rate of 7%? At an interest rate of 5%?
- Use the information in the table to graph the demand curve for investment for RMRS.
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