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1. Suppose that the Bank of Canada prints $1000 and deposits the money in a commercial bank account (demand deposit). The bank puts the $1000 in their reserves.
a. If the desired reserve ratio of each bank is 0.2 and people hold 0.2 of their bank deposits in cash, then what is the eventual change in the money supply?
b. Suppose the money demand curve is given by MD = 9,000 - 5000r, where r is the real interest rate. If the initial money supply is $6,000 then find the change in equilibrium real interest rate. 0.
c. Suppose that investment demand is given by I = 1,000 - 20r. Furthermore, C = 2,000 + 0.8Y - 0.2P, and G=T=X=IM=0. Find the change in aggregate demand (keeping P constant) resulting from the monetary policy.
d. Let AS = P. Find the changes in equilibrium GDP and price level form the monetary policy.
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