Calculate the percentages changes in the equilibrium, Microeconomics

The economy, however, is facing inflationary pressures. To deal with the macroeconomic problem, the government uses expansionary fiscal policy to decrease taxes and, as an indirect effect, the currency/deposit ratio (cd), decreases by 10%. Given the above information,

(i) Find the monetary base and calculate the percentage changes in the equilibrium values of the narrow (M1) and broad money (M2) supplies as a result of the government's policy stance. Explain and illustrate your answers with the appropriate diagrams, where necessary.

(ii) Calculate the percentages changes in the equilibrium values of both the narrowly-defined and broadly-defined money supply if the central bank had used instead both quantitative easing and  an expansionary monetary policy by purchasing private sector and federal government securities in the financial market worth $20million. Explain and illustrate your answers with the appropriate diagrams, where necessary.

(iii) Which of the two policies will have the most effect on the equilibrium interest rate? Why? Explain and illustrate your answers with the appropriate diagrams, where necessary.

(iv) If both policies are used simultaneously to deal with the problem in this economy, calculate the percentage changes in (a) the monetary base; (b) total bank deposits; (c) total currency holding of the non-bank public; (d) total bank reserves; (v) the deposit multiplier; and (vii) the money multiplier.

(v) What will be the likely effect of a sudden increase in expected inflation on the money supply of this economy? Explain carefully.

Posted Date: 3/14/2013 5:36:34 AM | Location : United States







Related Discussions:- Calculate the percentages changes in the equilibrium, Assignment Help, Ask Question on Calculate the percentages changes in the equilibrium, Get Answer, Expert's Help, Calculate the percentages changes in the equilibrium Discussions

Write discussion on Calculate the percentages changes in the equilibrium
Your posts are moderated
Related Questions
The government decides to implement a new economic stimulus package targeted at American Farmers. The stimulus package gives every household a $300 prepaid credit card that may on



Economics- Definition Economics is the study of how societies utilize limited resources to make valuable commodities and allocate them among diverse people. Microeconomics h

Human numbers grew as the population after 1800 After 1800, human numbers grew as the population explosion took hold. It carried our entire population to 6 billion in October 1

Joe is the owner-operator of Joe’s Haircuts Unlimited. Last year he earned $100,000 in total revenues and paid $65,000 to his employees and suppliers. During the course

Is coca-cola an oligopoly or monopolistic competition


determination of optimal solution mathematical presentation

9. The average supernormal profit for the firm is