Question #1

a.In this example, the reserve requirement is 9%.What is increase in deposits when the Fed buys $12.6 million in bonds from the First national Bank (in this example, you need to use the simple deposit multiplier?

b.If the reserve requirement is 9%, the currency ratio is 40% and the excess reserve ratio is 2%, what is the change in money supply?You must use the change in money supply equation that uses all of this information.

c.When the reserve requirement is increased, what is the effect on the size of the money supply?

d.What is the practical justification of the reserve requirement, besides as a monetary policy tool?

Question #2

These questions concentrate on Aggregate Demand and Aggregate Supply.

2-b-i.What is the difference between the slope of the short run aggregate supply curve and the long run aggregate supply curve?

2-b-ii.When does the short run aggregate supply curve shirt to the left?When does the long run aggregate supply curve shift to the right?

Question #3

Note that P =1

200120022003

M_s100104111

Y100011101240

a.Calculate the level of velocity for each year.At what rate is velocity growing?