How much will the money supply increase

Reference no: EM132994973

Problem 1: Economists occasionally speak of "helicopter money" as a shorthand approach to explaining increases in the money supply. Suppose the chair of the Federal Reserve flies over the country in a helicopter, dropping 10,000,000 newly printed $100 bills (a total of $1 billion). By how much will the money supply increase in the following scenarios, holding everything else constant:

a. all of the new bills are held by the public as currency?

b. all of the new bills are deposited in banks that choose to hold 10 percent of their deposits as reserves (and no one in the economy holds any currency)?

c. all of the new bills are deposited in banks that practice 100-percent-reserve banking?

d. people int he economy hold half oft heir money as currency and half as deposits ,while banks choose to hold 10 percent of their deposits as reserves?

Reference no: EM132994973

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