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Assume that the following data describe the condition of the banking system:
Total Reserves $200 billion
Transactions Deposited $700 billion
Cash held by public $100 billion
Reserve Requirement 0.20
(a) How large is the money supply (M1)?
(b) How large are required reserves?
(c) How large are excess reserves?
(d) By how much could the banks increase their lending activity?
derive balance of payment line graphically
Sims (1980) introduced an exciting and ground-breaking new framework which would prove to be extremely insightful for macroeconomic analysis. This is known as vector autoregression
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