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Calculate the money multiplier and the money supply

Assignment Help Macroeconomics
Reference no: EM131921291

Please use the table below to answer the following questions where:

C = currency

D = demand deposits

ER = excess reserves

RR = required reserves

MB = monetary base

All numbers are in billions of $ US.

Money Supply Data

DATE C D ER RR MB

8/1/2008 776.9 625.9 1.875 43.915 872.291

8/1/2009 858.3 799.1 765.626 63.116 1728.125

FOR ALL CALCULATIONS OF THE MONEY SUPPLY USE THE EXPRESSION THAT WE DERIVED: THE MONEY MULTIPLIER x THE MONETARY BASE. DO NOT USE THE SIMPLE C + D DEFINITION TO CALCULATE MONEY SUPPLY. IN THEORY THEY ARE THE SAME, EMPIRICALLY, DUE TO LACK OF COMPLETE DATA, THEY DIFFER SLIGHTLY. 

a) Calculate the money multiplier and the money supply for August of 2008 (2008-08-01)

b) Calculate the money multiplier and the money supply for August of 2009 (2009-08-01). 

c) Explain why

1) the money multiplier is so different and

2) why the monetary base is so different between these two periods. 

d) Calculate what the money supply would have been if the Fed increased the monetary base as they did from August of 2008 to August of 2009 but the money multiplier remained at its value in August of 2008. 

e) Given the conditions that prevailed during August of 2009, suppose the Fed wanted to increase the money supply by 10% from its value in August of 2009. What type & how many open market operations would they need to conduct?

Reference no: EM131921291

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