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Consider a hypothetical ABC economy in which the narrowly-defined measure of the  money supply (M1), as defined in the Canadian sense, in existence is 1250$ million. Assuming the economy's banking system behavior may be characterized by the following simple broad money-multiplier model in which all the variables are as defined in class:

MB= C+RR+ER (equilibrium condition)

C=0.25D (currency holdings of the non-bank public)

RR=RRd+RRt

RRd=0.05D (required reserves against demand deposits)

RRt=0.02T (required reserves against term deposits)

T=0.8D (definition of term deposits)

ER=ERd+ERt

ERd=0.002D (ratio of excess reserves to demand deposits)

ERt=0.001T (ratio of excess reserves to term deposits)

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M9528628

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