Discuss model of supply and demand for central bank money

Assignment Help Econometrics

Reference no: EM133253693

Assignment:

Question

Consider the model of supply and demand for central bank money. Assume that there there are commercial banks. Suppose that people hold 20% of their money in currency and 80% of their money in deposits. The central bank sets the reserve-todeposit ratio at 10%. In the first period, the central bank increases the supply of money by $200, buying bonds through Open-Market Operations. Use this information to answer the following questions:

(a) For the second period (after the central bank has injected $200 in the economy), calculate: (i) the demand for currency, (ii) the amount of deposit held at the commercial banks, (iii) the demand for reserves held at the central bank, and (iv) the demand for the high-powered money. How much is the additional money supply created at the end of the second period?

(b) How much is the additional money supply created at the end of the third period?

(c) As time continues, additional money supply will be created. Calculate the total increase in the money supply as a consequence of the initial $200 increase in the money supply by the central bank.

Reference no: EM133253693

Questions Cloud

What strategies should ben and jerry pursue going forward : What strategies should Ben and Jerry's pursue going forward, in terms of HR policies, manufacturing, distribution, branding and advertising

How can value-chain analysis help identify company strengths : Assignment - Strategic Management Question - How can value-chain analysis help identify a company's strengths and weaknesses? Discuss

What does the unemployment rate measure : How does this affect the labour force participation rate and the unemployment rate? Explain.

What factors besides class contributed to your conflict : What factors besides class contributed to your conflict? Write a brief description of what class(es) are involved in your chosen topic

Discuss model of supply and demand for central bank money : Consider the model of supply and demand for central bank money. Assume that there there are commercial banks.

How do delusions differ from hallucinations : How do delusions differ from hallucinations? What is schizoaffective disorder, how does it differ from schizophrenia

How a story is told and the role of mise-en-scene : Both A Trip to the Moon and Tokyo Story involve a "trip" -- but that might be the last of their similarities, or is it?

How will you continue to be transformed by renewing of mind : As you progress on your doctoral journey, how will you continue to, "be transformed by the renewing of your mind?"

What is the standard error of the sample mean : Six years post-graduate the sample mean of earnings for this group is $40,000. Furthermore, the standard deviation of earnings in the sample is $24,000.

User Account

All Pages