GIVEN: Consider a three-period-lived overlapping generations model in which all central bank money is held as bank reserves. Suppose further than private agents choose to hold real deposits in the amount of 100,000 goods, that the central bank supplies $20,000 of monetary base (fiat money), and the required reserve ratio equals 0.12.

QUESTION:

ANSWERS FOR A)

vt=0.6

(M1)t=166,666.67

Ht= 88,000

ANSWERS FOR B)

vt=0.4

(M1)t= 250,000

Ht= 92,000

C) Suppose that the central bank charges the rate of interest ? on the reserves that it lends. If the central bank wants its discount window activity to have no effect on the rate of return on deposits, what discount rate ought it to charge? Explain how you obtained your answer. How might the choice of ? affect the rate of return on capital?

Consider a three-period-lived overlapping generations model in which all central bank money is held as bank reserves. Suppose further than private agents choose to hold real deposits in the amount of 100,000 goods, that the central bank supplies $20,000 of monetary base (fiat money), and the required reserve ratio equals 0.12. Find the goods value of money, Ur, the total money supply, (MI), and the quantity of intermediated capital. Suppose next that the central bank stands ready to lend reserves in an amount equal to 1/3 of private banks' current holdings of reserves. Assuming that private banks take full advantage of this borrowing privilege, find the goods value of money, U, the total money supply, (M1), and the quantity of intermediated capital. C. Suppose that the central bank charges the rate of interest y on the reserves that it lends. If the central bank wants its discount window activity to have no effect on the rate of return on deposits, what discount rate ought it to charge? Explain how you obtained your answer. How might the choice of waffect the rate of return on capital