which answer from the highlighted is correct? According to the Positive Money vi
ID: 1207252 • Letter: W
Question
which answer from the highlighted is correct?
According to the Positive Money videos, in the traditional money multiplier model
if the reserve ratio is 10%, the money supply will be about 100 times the base money in the economy.
if the reserve ratio is 10%, the money supply will be about 10% of the output in the economy.
if the money multiplier is 10, a £100 increase in the money supply will increase output by £1000.
if the reserve ratio is 10%, the money supply will be about 10 times the base money in the economy.
if the money multiplier is 10, a £100 increase in government spending will increase output by £1000.
1b
According to Positive Money, in 2006 for the British pound, bank-created money was
zero and it was 14 times base money after the latest global financial crisis and the Bank of England's quantitative easing.
14 times base money, and it was 14 times base money after the latest global financial crisis and the Bank of England's quantitative easing.
80 times base money, and it was 14 times base money after the latest global financial crisis and the Bank of England's quantitative easing.
negative and it was 80 times base money after the latest global financial crisis and the Bank of England's quantitative easing.
14 times base money, and it was 80 times base money after the latest global financial crisis and the Bank of England's quantitative easing.
1c
Consider the risk premium, , as defined in lecture and in the textbook. If the domestic central bank has a fixed exchange rate policy which the markets find credible, then
nominal interest rates should be the same in the domestic country and the foreign one only if that risk premium is zero.
nominal interest rates should be the same in the domestic country and the foreign one only if that risk premium is nonzero.
nominal interest rates should be the same in the domestic country and the foreign one only if that risk premium is negative.
nominal interest rates should be the same in the domestic country and the foreign one only if that risk premium is positive.
nominal interest rates in the domestic country and the foreign one cannot be the same, even if that risk premium is zero, since there is another term in the uncovered interest parity formula.
Explanation / Answer
1a. if the reserve ratio is 10%, the money supply will be about 10 times the base money in the economy.
The money multiplier is the amount of money that banks generate with each dollar of reserves.
1b According to Positive Money, in 2006 for the British pound, bank-created money was zero and it was 14 times base money of England's quantitative easing.
More than 97% of all the money in the economy exists as bank deposits – and banks create these deposits simply by making loans. Every time someone takes out a loan, new money is created. The Bank of England recently released a report explaining how this process works.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.