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Full employment equilibrium

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Reference no: EM131593587

Show all work for credit and carry all fractions to at least five decimal places. Work must be legible for credit.

Savings deposits = $2221.5b Demand Deposits = $1880.6b

Required reserve ratio = 9% Currency in circulation = $1100.0b

Vault Cash = $91.5b Household money market mutual fund = $1753.3b

Certificates of deposit (value< $100,000) = $2450.0b Banking system deposits with the Fed = $208.2b

Household money market deposits accounts = $1588b Certificates of deposit (value > $100,000) = $4827.6b

Institutional money market accounts = $3864.3b Treasury Bills = $458.3b

a. Calculate the MB.

b. Calculate m1 as illustrated in practice problems. Interpret the multiplier.

c. Calculate M1 using the multiplier method.

d. Check using the definition of M1 method.

e. Repeat parts b-d for M2.

f. Suggest a specific action by the Federal Reserve if the macroeconomic models suggest that a $550 billion dollar increase in the M2 money supply is required to bring the economy back to a full employment equilibrium.

g. (Bonus: 6 additional points) recalculate the monetary base, multiplier, and money supply for M2 (using the equation approach) if households respond to new regulations by moving $80.6b from their checking accounts to household CD's and shift $240.7b from their currency holdings to their savings accounts.

Reference no: EM131593587

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