Solution-What is the m1 money multiplier in this case

What is the m1 money multiplier in this case

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1. Suppose the public holds $25B as cash in wallets and purses and $50B in demand deposits. If the Fed requires a minimum reserve ratio of 8% and banks keep an additional 7% in excess reserves, what is the M1 money multiplier in this case?

2. Pretend that a country is on the gold standard and an evil villain succeeds in destroying a significantly large amount of gold. On a graph that relates the purchasing power of money to the quantity of money, show the initial equilibrium and the changes that result from the dastardly deed.

3. These questions involve the Federal Reserve's monetary policy tools.

a. Imagine that the FOMC suddenly discovers that it needs to drastically cut the amount of M1 in the country in a very short amount of time. Which of three tools would you suggest they use, how, and why?

b. Now suppose that the FOMC determines that the cut doesn't need to be that drastic, and the window of time is significantly longer than originally thought. Which of the three tools would you suggest they use, how, and why?

Reference no: EM132410797

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What is the m1 money multiplier in this case

Reference no: EM132410797

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