In answering the following questions, round all dollar amounts to the nearest do
ID: 1150033 • Letter: I
Question
In answering the following questions, round all dollar amounts to the nearest dollar. Round the multipliers and parameter values to 3 decimal places. (Note: Answers will rarely work out to be even numbers.) 1 Assume initially that: Currency = $2,200 DD = $5,000 e=.333 required reserves = $400 TD = $12,000 MMMF = $1,400 Determine the initial levels of: bod, Km, kM2, MB, M1, M2, and ER. (1 ea.) 2. Determine the effect on MB, M1, M2, Currency, DD, ER, RR, TD, kM1 and km2 if the excess reserves to DD ratie becomes .80. (1 ea.) 3. Quantify (state value and direction) the open market operation that would be necessary to reverse the change in MI that occurs in question #2? (5)Explanation / Answer
1. It is known that MB = C+R that is, Monatary Base is the sum of currency and the reserves in the economy.
Also, R = ER + RR that is, total reserves are the sum of excess reserves and the required reserves.
RR = r × d
ER = e × d
ER (Excess Reserves) = 0.333 × 5000
ER = $1665
MB (Monatery Base) = 2200 + 400 + 1665
MB = $4265
Kdd Banks deposits (assumed to be constant)
r = RR/D
r = 400/5000
r = 0.08 or 8 percent
Kdd = e + r = 0.06+0.333
Kdd = 0.393
M1 = C + D = 5000+ 2200
M1 = $7200
Km1 = M1/MB = 7200/4265
Km1 = 1.688
Km2 = M2/MB
MB = 3772
M2 = MI + MMMF = 7200 + 1400
M2 = $8600
Km2 = M2/MB = 8600/4265
Km2 = 2.01
Note: Can post only one question at a time, kindly post the others separately. Hope this one helps.
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