1. The table below provides information on the sources of money in a frictional economy.

Calculate the Monetary Base. M1, and M2 based on his information. Show your work.

Answer the following questions about the =peaty system of this fictional economy:

2. A) Suppose Coyote Bank has $100.000 WW1) of checkable deposits. (ie., liabilities). If the reserve requirement in this economy is 0.2, what is the minimum amount of money that Coyote Bank must bold as reserves? Explain and show you work.

B) Suppose the reserve ratio in this economy is actually 0.4. A new student opals a checking account at Coyote Bank and deposits $1.000. What is tilt maximum amount by which the meaty supply can increase due to this new deposit) Show your work.

C) Why would an economy's banking system choose to hold more reserves than requited?

For example, in this question, banks are required to keep 20% of deposits as tomes, but they choose to hold 40%. Give I reason why banks might choose to do this and explain in 1-2 sentences.

D) If people choose to hold more money as cash and keep less in a checking account, how will this change the money multiplier (increase. decrease. stay the same)? Explain m 1-2 sentences.

Transcribed Image Text:

Monetary Information for a Fictional Economy $100 $1,000 $200 $500 Traveler's Checks Checkable Deposits Currency in Circulation Reserves Held at Central Bank Time Deposits (such as Certificates of Deposit) Savings Deposits $2,000 $3,000 Monetary Information for a Fictional Economy $100 $1,000 $200 $500 Traveler's Checks Checkable Deposits Currency in Circulation Reserves Held at Central Bank Time Deposits (such as Certificates of Deposit) Savings Deposits $2,000 $3,000

Answer rating: 100% (QA)

1 Monetary Base currency in circulation bank reserve 200 500 700 M1 Physical currency travele... View the full answer