13. Suppose that the money demand function is: (1) K = Use the money demand equation along with the following table of values to find the velocity for each period: Y Y(in billions) Interest Rate - 500i Period 1 12,000 0.05 Period 2 12,500 0.07 Period Period Period Period 3 4 5 6 12,250 12,500 12,800 13,000 0.03 0.05 0.07 0.04 Period 7 13,200 0.06

Q3. Suppose that the money demand function is given by: Md=$Y (.25-i), where $Y is $100. (a) Derive the bond demand function (B) assuming that wealth is $50. (b) Calculate Md and Bd at interest rates of 5% (use .05) and 10% (use .10). SHOW WORK. (c) How does an increase in the interest rate affect the amount of money people are willing to hold, according to your calculations? How does an increase in the interest rate affect the quantity of bonds people are willing to hold? (d) Suppose the supply of money is currently $20.. Show that the equilibrium interest rate is 5% (.05). (e) Suppose the central bank wants the equilibrium interest rate to rise to 15% (.15). At what level should it set monetary policy? SHOW WORK. What kind of monetary policy (expansionary or contractionary) does this imply?

2. Suppose that in 2018 customers deposit $4,000 into their bank accounts. Based on the extended money multiplier calculated in part (1), calculate the total amount which the money supply in the banking system will eventually increase to. Show all steps involved in the calculation. part 1 answer DRR = Ratio (4% or 0.04)             CDR = % of money in wallets (3% or 0.03) = (1 + 0.03) / (0.04 + 0.03) = 1.03 / 0.07 Answer = 14.71 Therefor Every $1 in the bank will allow the bank to create $14.71

1. Consider the following table with data about monetary aggregates (billions of dollars, seasonally adjusted data): Date May 2012 Nov. 2012 Feb. 2013 May 2013 M1 2,262.6 2,405.5 2,477.9 2,534.7 M2 a) Calculate the annualized growth rate of M1 and M2 for the following periods: May 2012 May 2013 (one year), Nov. 2012-May 2013 (six months), and Feb. 2013-May 2013 (three months). b) Comment on the growth rates of these monetary aggregates. 9,870.3 10,298.3 10,424.7 10,598.9 Source: Federal Reserve System (H.6)