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Macroeconomics Assignment: Money Supply & AD-AS Analysis

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5 views1 page

Macroeconomics Assignment: Money Supply & AD-AS Analysis

Uploaded by

Nqoc Duc Vu
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd

MACROECONOMICS ASSIGNMENT

1. The banking system has $10 million in reserves, the reserve requirement is 10 percent. The
public holds a currency-to-deposit ratio of 50%. Assume that the central bank purchases $2
million government bonds in open market operations and there are no excess reserves in the
banking system. Calculate the change in money supply resulted from the above policy and
show its effects on interest rates and money quantity in the money market diagram.

2. Assume the economy is initially in a long-run equilibrium.


a. Use the AD-AS to show the short-run effects on prices (inflation) and output
(unemployment) if the government increases its spending on public infrastructure.
b. What should the central bank do if it wants to stabilize prices in response to the event in part
(a)?
c. If the central does not intervene as in part (b) how does the economy adjust in the long run?

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