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
explain nature of microeconomic

shows teh steps in unitary mehod

In the case of a tax abolition on food staples, what are the short run and long run effects?

The owner of the sole stage-theatre in the city of Vordervilla has found through   experience that the cost of running his 600-seat theatre remains virtually the same irrespective

explain how microeconomic and macroeconomic issues may be represented using the production possibility curve

what is the effect on the market for dvd players if the price of dvd rises

about the price determination with the held of diagramatic explanation numerical explanation related to the concept

Earth is completely surrounded by thick envelope of gases called atmosphere. Atmosphere is sub divided into different layers depending upon the distance from the sea level. The