Problem: Assume that these are the most recent U.S. data on key monetary variables (T stands for trillions of dollars):
Required:
Question 1: Calculate the money multiplier.
Question 2: Now, assume the Fed buys $35 Billion worth of T-Bonds. Will the money supply increase or decrease? Explain
Assuming no change in E (the percentage of deposits that banks want to hold as excess reserves), and no change in cash held by the public, what will be the final U.S money supply after the Fed's action? Show all of your calculations.
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Cash held by the public
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$4T
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Checking deposits
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$7T
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R
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8%
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E
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6%
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