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Calculating money multiplier, nominal values of deposits, currency also reserves in Keynesian closed economy model.

Consider the following Keynesian closed economy model

Real money demand : L= 0.2 Y=200r
Full employment output: Y*=500
Nominal monetary base : H= 960
Currency deposit ratio: cu=0.5

Suppose which the aggregate demand for goods is decreasing function of the interest rate
Y=.6/(.001) - r /(.001)

A. Suppose which the reserve- deposit ratio I sres=0.1 also which the economy is in long run equilibrium.

1. Illustrate what is the value of the money multiplier?

2. Illustrate what is the value of the nominal money supply?

3. Illustrate what are the nominal values of deposits, currency also reserves?

4. Illustrate what is the value of the real interest rate in long run equilibrium?
Hint: you know full employment output Illustrate what interest rate equalities the aggregate demand for goods to the aggregate supply for goods

5. Illustrate what is the value of the price level in long run equilibrium?
Hint: you know full employment output also the supply. Illustrate what does the price level have to be so which the money marketplace is equilibrium?

6. Illustrate what is the value of velocity in long run equilibrium?

B. Suppose which, as a result of a financial crisis, banks become reluctant to make loans also they want to increase their reserve holding relative to deposit. Specifically, the reserve deposit ratio increases to res=0.7

1. Suppose which the central bank maintains the value of monetary base equal to 960.

a. Illustrate what is the new value of the money multiplier?

b. Illustrate what is the new value of the nominal money supply?

c. Given the new value of the nominal money supply, Illustrate what are the short run equilibrium values of output also the real interest rate whenever the price level remains fixed at its value

d. Illustrate what is the new long -run equilibrium value of the price level

1.Suppose which Whenever the reserve - deposit ratio increase to ares0.7 , the central bank immediately changes the monetary base to maintain output also the price level at their long run equilibrium values .Illustrate what value of the monetary base will maintain the level of output also the price level unchanged?

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M916618

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