Imagine a fictional country called the City of Brightness. Suppose we have the following information forthe City
Question:
Imagine a fictional country called the City of Brightness. Suppose we have the following information forthe City of Brightness:
Individuals and businesses hold:
100 billion in currency
2,000 billion in chequable deposits
10,000 billion in non-chequable deposits
1,500 billion in fixed term and other deposits.
Banks in the City of Brightness held:
900 billion in notes and coins
200 billion in reserves at the central bank
1,600 billion in loans to households and businesses.
a) Calculate the monetary base, thecurrency drain ratio, M1, and money multiplier (using Ml) for the City of Brightness.
b) Suppose that piano teachers, and manysmall businesses, begin accepting credit cards as a method of payment, so desired currency holding falls. Assume all else remains constant. Explain what will happen to the currency drain ratio and the mi money multiplier.
c) Explain the three primary functions of money, over and above its role as a means of payment.
Managerial Economics and Strategy
ISBN: 978-0321566447
1st edition
Authors: Jeffrey M. Perloff, James A. Brander