Consider an economy where the following statistics describe the money supply: CU = $1,250 billion RES =
Question:
Consider an economy where the following statistics describe the money supply: CU = $1,250 billion RES = $150 billion DEP = $3,500 billion The real quantity of money demand is: L(Y, i) = 0.4Y 600i where Y is real output and i is the nominal interest rate. Assume that price level is fixed at P=1.
A) Initially, suppose the real interest rate (r) equals 2%, the expected inflation rate (e ) equals 3%, calculate the amount of the monetary base, the money supply, the reserve to deposits ratio, the currency to deposits ratio, the money multiplier, and the level of output that clears the money market. BASE: _______________ Money Multiplier: ______________ Money Supply: _____________ Currency-deposit ratio: ___________Reserve-deposit ratio: ____________Output_______________
B) Suppose the long-term target federal funds rate is 3.5% and the target inflation rate is 2%. Using the Taylor Rule calculate the federal funds rate if the current inflation is 5% and the real output is 2% below the trend output.
Macroeconomics
ISBN: 978-0321675606
6th Canadian Edition
Authors: Andrew B. Abel, Ben S. Bernanke, Dean Croushore, Ronald D. Kneebone