The total money supply M is the sum of two components: bank deposits D and cash...

 

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The total money supply M is the sum of two components: bank deposits D and cash holdings C, which we assume to bear a constant ratio C/D = c, 0 < c < 1. The high-powered money H is defined as the sum of cash holdings held by the public and the reserves R held by the banks. Bank reserves are a fraction of bank deposits, determined by the reserve ratio r, 0 <r < 1. COMALEH a) Express the money supply M as a function of high-powered money H (10 points). b) Would an increase in the reserve ratio r raise or lower the money supply (10 points)? c) How would an increase in the cash-deposit ratio c affect the money supply (5 points)? Let the demand and supply functions for a commodity be Qa= D(P, Yo) (Dp < 0; Dy > 0) Qs = S(P,To) (Sp<0; ST > 0) Where Yo is income and To is the tax on commodity. All derivatives are continous. a) Write the equilibrium condition in a single equation. (5 points) b) Check whether the implicit-function theorem is applicable. If so, write the equilibrium identity. (5 points) ap* др' c) Find- and and discuss their economic implications. (7.5 points) ƏYo aro aq* d) Find from the supply function and მq* ƏYo OTO the demand function for the former which is მი* ато from the demand function. (Why not use მq* and the supply for the latter which is ƏYo ?) (7.5 points) The total money supply M is the sum of two components: bank deposits D and cash holdings C, which we assume to bear a constant ratio C/D = c, 0 < c < 1. The high-powered money H is defined as the sum of cash holdings held by the public and the reserves R held by the banks. Bank reserves are a fraction of bank deposits, determined by the reserve ratio r, 0 <r < 1. COMALEH a) Express the money supply M as a function of high-powered money H (10 points). b) Would an increase in the reserve ratio r raise or lower the money supply (10 points)? c) How would an increase in the cash-deposit ratio c affect the money supply (5 points)? Let the demand and supply functions for a commodity be Qa= D(P, Yo) (Dp < 0; Dy > 0) Qs = S(P,To) (Sp<0; ST > 0) Where Yo is income and To is the tax on commodity. All derivatives are continous. a) Write the equilibrium condition in a single equation. (5 points) b) Check whether the implicit-function theorem is applicable. If so, write the equilibrium identity. (5 points) ap* др' c) Find- and and discuss their economic implications. (7.5 points) ƏYo aro aq* d) Find from the supply function and მq* ƏYo OTO the demand function for the former which is მი* ато from the demand function. (Why not use მq* and the supply for the latter which is ƏYo ?) (7.5 points)

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a Money supply M as a function of highpowered money H M H1r cHr b An increase in the reserve rati... View the full answer