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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?
The aggregate demand curve shows the combinations of the price level and the level of output at which the goods and money markets are simultaneously in equilibrium. Let us now go o
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Here from a), profit maximizing price = 7 and Q = 10. It is shown in the figure below:- The consumer surplus is shown in blue area which is given as (9-7) *10*1/2 =10 dolla
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