The Solution.: Task 1

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Task 1

Calculate the value of monetary aggregates of Ukraine in 2008 if:


- cash outside banks - UAH 125 billion
- cash in cash desks of legal entities - UAH 30 billion
- demand deposits - UAH 71 billion
- term deposits - UAH 167 billion
- foreign currency savings - 120 billion UAH
- funds for trust operations - UAH 1 billion
- the value of government loan bonds - UAH 1.7 billion
The solution.
Calculate the value of aggregates of money supply:
M0 = cash outside banks + cash at corporate cash desks = 125 + 30 = 155 (UAH
billion)
M1 = M0 + demand deposits + funds on special card accounts = 155 + 71 = 226 (UAH
billion)
M2 = M1 + term deposits + foreign currency savings = 226 + 167 + 120 = 513 (UAH
billion)
M3 = M2 + funds for trust operations + value of government loan bonds = 513 + 1 +
1.7 = 515.7 (UAH billion)
M3 aggregate covers all forms of money and represents money supply (see Table 2.1).
Answer: M0 = 155 billion UAH, M1 = 226 billion UAH, M2 = 513 billion UAH, M3 =
515.7 billion UAH.
Task 2
Calculate the value of the monetary aggregate M1 (based on real 2007 data)
- cash on hand at population - UAH 91.1 billion
- cash in cash desks of legal entities - UAH 20 billion
- term deposits - UAH 209.5 billion
- funds on special card accounts - 3 billion UAH
- cash in banks' cashiers - UAH 31 billion
- demand deposits - UAH 36.6 billion
The solution
To calculate the monetary aggregate M2, it is necessary to calculate the values of
monetary aggregates M0 and M1:
M0 = cash on hand at population + cash at cash desks of legal entities = 91.1 + 20 =
111.1 (UAH billion)
M1 = M0 + cash at banks + demand deposits + funds on special card accounts + 111,1
+ 31 + 36,3 + 3 = 181,7 (UAH billion)
M2 = M1 + term deposits = 181.7 + 209.5 = 391.2 (UAH billion)
Answer: M2 = 391.2 (UAH billion) (see Table 2.1)
Task 3
1. Determine the amount of money needed for non-inflationary circulation according
to the following data (based on real events of 2008):
- the price of goods, works and services sold (GDP 2008) - UAH 949.9 billion
- the sum of the prices of goods, works, services realized with a delay of payment -
30% of the volume of sales of goods, works and services
- the amount of payments on liabilities, the maturity of which has come - 120 billion
UAH
amount of mutually repayable payments - 15% of total sales of goods, works and
services
- average amount of money supply (M2) per year - 1,8
2. How exactly will the volume of money change if its turnover increases by 2 turns?
3. How will the volume of money change if mutual debt settlement is not carried out?
The solution.
1.To find the amount of money needed for non-inflationary circulation, we use the
formula:
PQ −K + P−V
Mn = KG = V
949 , 9 – 0,3 x 949,9+120 – 0,15 x 949,9
Mn1 = 1,8
= 356,91 (UAH billion)

2. If the turnover of money supply will increase by 2 revolutions, then:


949 , 9 – 0,3 x 949,9+120 – 0,15 x 949,9
Mn2 = 1,8+ 2
= 169,06 (UAH billion)

Therefore, as a result of accelerating the circulation of the money supply, the need for
it to ensure non-inflationary circulation will decrease by the following amount:
356.91 - 169.06 = 187.85 (UAH billion)
3.If no mutual debt settlement is carried out, then:
949 , 9 – 0,3 x 949,9+120
Mn3 = 1,8
= 436,07 (UAH billion)

Thus, if the mutual settlement of debts is stopped, the need for money to ensure a
non-inflationary circulation will increase by the following amount:
436.07 - 356.91 = UAH 79.16 billion
Answer: Mn1 = UAH 356.91 billion; Mn2 = 169.06 billion UAH; Mn3 = 436.07 billion
UAH
Task 4
Determine how the nominal GDP will change if the money turnover rate is 1.84
revolutions and remains unchanged and the money supply increases from UAH 259
to UAH 391 billion.
The task is calculated according to the NBU Annual Report - 2007.
https://www.bank.gov.ua/an_rep/A_report_2007.pdf.

The solution.
GDP is calculated based on I. Fisher's equation:
MxV=PxQ
where M is the money supply, UAH;
V - the speed of circulation of money, turnover;
P - average price level, UAH / mind. ol .;
Q - the physical volume of GDP, mind. ol.
And,
P x Q = GDP
Therefore,
GDP = M x V
Thus, the correlation between money supply and national GDP is directly
proportional. Calculate the nominal GDP before and after the growth of money
supply:
GDP1 = 259 x 1,84 = 476,56 (UAH billion)
GDP2 = 391 x 1.84 = 719.44 (UAH billion)
Growth in nominal GDP under the influence of money supply growth was:
719.44 - 476.56 = 242.88 (UAH billion)
Answer: ΔGDP = UAH 242.88 billion.
Task 5
Determine the average quarterly and annual rate of money circulation in Ukraine
according to the following real data of 2008:
- as of 1 April 2008 GDP amounted to UAH 187.717 billion; money supply (M3
2008) - UAH 416.013 billion;
- as of 1 July 2008 GDP - UAH 421.217 billion; money supply (M3 2008) - UAH
450.589 billion;
- as of 01.10 GDP 2008 - UAH 697,194 billion; money supply (M3 2008) - UAH
477.659 billion;
- as of December 31, 2008 GDP amounted to UAH 949.864 billion; money supply
(M3 2008) - UAH 515.727 billion
The task is calculated according to the NBU Annual Report - 2008.
https://www.bank.gov.ua/Publication/an_rep/A_report_2008.pdf.

The solution.
To find the quarterly rate of money circulation, it is necessary to calculate the rate of
money circulation for each quarter separately, using the formula:
GDPi
V= Mi ,

where i is the sequence number of the quarter:


181,717
V1 = 416,013 = 0,45 (c)

421,417 – 187,717
V2 = 450,589
= 0,52 (c)

697,194−421,417
V3 = 477,659
= 0,58 (c)

949,864−697,194
V4 = 515,727
= 0,49 (c)

0,45+0,52+0,58+0,49
Vq = 4
= 0,51 (c)

We calculate the annual rate of money circulation by the formula


GDPp
V = Mc ,

where
GDP - the annual GDP;
Mc - average amount of money in circulation per year:
416,013+ 450,589+ 477,659+515,727
Mc = 4
= 464,997 (UAH billion)

949,864
VCp = 464,997 = 2,04 (c)

Answer: in 2008, the average quarterly velocity of money for the M3 unit is: Vq = 0.51
c.; annual turnover rate is: VCp = 2.04 c.
Task 6
Calculate the aggregate structure and average turnover rate of the money supply, as
well as the duration of one turnover in days according to the data given in Table 2.
The task is calculated according to the NBU Annual Report - 2008.
(https://www.bank.gov.ua/Publication/an_rep/A_report/_2008.pdf).
Table 2
Indicators at the beginning of the at the end of the reporting
reporting year year
(I quartal) UAH billion (IV quartal)UAH billion

Cash outside banks 109,841 154,759


Funds on current accounts 73,836 70,369
and demand deposits
Сurrency savings (сurrent (23,552+76,240)=99,792 (35,003+122,509)=157,512
and urgent)
Time deposits 127,977 129,888
Securities without shares 4,567 3,200
The sum of the prices of 189,768 949,864
sold goods
Goods sold on credit 18,805 96,91
The amount of payments 47,89 22,641
on loans
Payment offsetting 2 3
The solution
The calculation of the aggregate structure of the money supply at the beginning and
end of the reporting period is given in Table 2.
Total money supply (M3) at the beginning of the reporting year:
109,841 + 73,836 + 99,792 + 122,977 + 4,567 = 416,013 UAH billion.

Total money supply (M3) at the end of the year:


154,759 + 70,369 + 157,512 + 129,888 + 3,200 = 515,727 UAH billion.
Table 3
At the beginning of the reporting year, UAH At the end of the reporting year, UAH billion
billion
Money indicators Share in money Money indicators Share in money
supply supply
M0 109,841 109,841 M0 154,759 154,759
x100=26,96 x100=30,01
416,013 515,727
% %
M1 109,841+73,836 183 , 68 M1 154,759+70,369 225,128
x100=44,15 x100=43,65
416,013 515,727
=183,68 % =225,128 %
M2 183,68+99,792 411,45 M2 225,128+157,512 512,528
x100=98,90 x100=99,38
416,013 515,727
+127,977=411,45 % +129,888=512,52 %
8
M3 411,45+4,567 100% M3 512,527+3,200 100%
=416,013 =515,727

Since we have data on the sale of goods on credit, we use the formula to find the
average rate of circulation of money supply:
PQ −K + P−V
Vc = Mc

We find the average values for the reporting year:


189,768+ 949,864
∑ PxQ = 2
= 569,82 (UAH billion);

18,805+ 96,91
∑K= 2
= 57,86 (UAH billion);
47,89+22,641
∑P= 2
= 35,27 (UAH billion);

2+ 3
∑V = 2 = 2,5 (UAH billion);

416,013 515,727
Mc = 2
= 465,87 (UAH billion);

569,82−57,86+35,27−2,5
Vc = 465,87
= 1,17 (c);

365 365
Tc = Vc = 1,17 = 312 (d).

Answer: Vc = 1,17 c.; Tc = 312 d.

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