Money & Banking Econ class

Reference - Modeling Monetary Economics (2016, Fourth Edition, Cambridge

University Press) by Bruce Champ, Scott Freeman and Joseph Haslag.

Problem 1 Consider an economy with a constant population in which people wish to hold bank check ing deposits worth a total of 5000 goods in every period. The economy has a total endow ment of 10000 goods in each period. There is a total stock of unintermediated capital of 1000 goods in each period. Bank deposits are the only form of money in the economy. De posits at banks are subject to a reserve requirement of 20 percent. The real rate of return on capital is 2: = 1.10 per period. After meeting the reserve requirement, banks invest the remainder of all deposits into capital. Individuals do not hold capital. The at money stock (monetary base) is $2000 in every period. Calculate the following vaJiables: (a) The price of a good [in dollars). (b) The gross real rate of return on deposits that will be o'ered by banks in a competitive ec ono n 1y. (e) The total nominal money stock M 1. (d) The money multiplier. (e) The total capital stock. (1') Real GDP. Problem 2 Answer each part of Problem 1 assuming that the central bank allows banks to borrow up to one half of required reserves at the gross interest rate of 1.08