Consider an economy with a constant population in which people wish to hold bank checking deposits worth a total of 5,000 goods in every period. The economy has a total endowment of 10,000 goods in each period. There is a total stock of unintermediated capital of 1,000 goods in each period. Bank deposits are the only form of money in the economy. Deposits at banks are subject to a reserve requirement of 20 percent. The net real rate of return on capital is 10 percent per period. After meeting the reserve requirement, banks invest the remainder of all deposits into capital. Individuals do not hold capital. The fiat money stock is $2,000 in every period. Assume that the central bank allows banks to borrow up to one half of required serves at a net interest rate of 8%.
Calucalte values for the follwing variables:
a. the price of a good
b. the gross real rate of return on deposits that will be offered by banks in a competitive economy
c. the total nominal money stock M1
d. the money multiplier
e. the total capital stock
f. Real GDP