A) You are given the following information on the macro economy:
Consumption: 200 + 0.75Y
Investment: 100 + 0.10Y
Government Spending 500
Exports 100
Imports 50 + 0.25Y
Compute the equilibrium level of income, the size of the multiplier, and the change in equilibrium income for an increase in autonomous consumption of $50 million.
B) Suppose the entire economy contains $5000 worth of one-dollar bills.
-If people fail to deposit any of the dollars but instead hold all $5000 as currency, how large is the money supply?
-If people deposit the entire $5000 worth of bills in banks that are required to observe a 100% reserve requirement, how large is the money supply?
-If people deposit the entire $5000 worth of bills in banks that are required to observe a 20% reserve requirement, how large is the money supply?
C) You are given the following information on the banking system.
Reserve requirement rr = 0.08
Currency-deposit ratio c = 0.10
Excess reserve ratio e = 0.05
Compute the simple deposit and money multipliers.