Please Answer the following two Economics Questions: 1. Consider an economy where the ratio of required reserves to bank deposits is r = 0.15, the ratio of currency holdings to deposits is c = 0.2, the ratio of bank excess reserves to deposits is e = 0.25 and the monetary base is 100. Show how to calculate the value of the M1 money multiplier predicted by the money multiplier model. Explain your answer
IS-LM-PC Analysis
The IS (Investment Saving), LM (Liquidity Preference- Money Supply), and PC (Philips Curve) is the model that looks at the dynamics of output and inflation. It takes into account the central bank policy decision to adjust the inflation and real interest rate in the economy. It enables the economist to weather to priorities between employment and inflation rate analyzing the model. It is a practice-driven approach adopted by economists worldwide.
IS-LM Analysis
The term IS stands for Investment, Savings, and LM stands for Liquidity Preference, Money Supply. Therefore, the term IS-LM model is known as Investment Savings – Liquidity preference money Supply. This model was introduced by a Keynesian macroeconomic theory which shows the relationship between the economic goods market and loanable funds market or money market. In other words, it shows how the market for real goods interacts with the financial markets to strike a balance between the interest rate and total output in the macroeconomy. This particular model is designed in the form of a graphical representation of the Keynesian economic theory principle. The output and money are the two important factors in an economy.
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Please Answer the following two Economics Questions:
1. Consider an economy where the ratio of
r = 0.15, the ratio of currency holdings to deposits is c = 0.2, the ratio of bank
how to calculate the value of the M1 money multiplier predicted by the money
multiplier model. Explain your answer
2. If monetary velocity is 5, the GDP price deflator equals 2 and real GDP is 250,
what is the money supply? Explain your answer
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