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    Week3 Homework3

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    This document contains a homework assignment on macroeconomics involving calculations for monetary systems in equilibrium. It provides three exercises analyzing the effects of open market operations, changes in the currency-deposit ratio, and changes in the reserve-deposit ratio. For different sets of initial monetary values, students are asked to compute variables like the monetary base, money supply, currency-deposit ratio, and money multiplier, both before and after the given change. The answers to the calculations are provided.

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    Week3 Homework3

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    merteraslan2003
    21 views3 pages
    This document contains a homework assignment on macroeconomics involving calculations for monetary systems in equilibrium. It provides three exercises analyzing the effects of open market operations, changes in the currency-deposit ratio, and changes in the reserve-deposit ratio. For different sets of initial monetary values, students are asked to compute variables like the monetary base, money supply, currency-deposit ratio, and money multiplier, both before and after the given change. The answers to the calculations are provided.

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    This document contains a homework assignment on macroeconomics involving calculations for monetary systems in equilibrium. It provides three exercises analyzing the effects of open market operations, changes in the currency-deposit ratio, and changes in the reserve-deposit ratio. For different sets of initial monetary values, students are asked to compute variables like the monetary base, money supply, currency-deposit ratio, and money multiplier, both before and after the given change. The answers to the calculations are provided.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    21 views3 pages

    Week3 Homework3

    Uploaded by

    merteraslan2003
    This document contains a homework assignment on macroeconomics involving calculations for monetary systems in equilibrium. It provides three exercises analyzing the effects of open market operations, changes in the currency-deposit ratio, and changes in the reserve-deposit ratio. For different sets of initial monetary values, students are asked to compute variables like the monetary base, money supply, currency-deposit ratio, and money multiplier, both before and after the given change. The answers to the calculations are provided.

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    of 3

    Macroeconomics 1 Homework 3

    The monetary system


    Koen Vermeylen
    University of Amsterdam

    February 2023

    1 An open market operation


    Consider a monetary system which is in equilibrium in period t. Currency in circulation, reserves and demand
    deposits are given by Ct , Rt and Dt , respectively. Compute then the following variables for period t:
    1. The monetary base (Bt ).
    2. The money supply (Mt ).
    3. The currency-deposit ratio (crt ).
    4. The reserve-deposit ratio (rrt ).
    5. The money multiplier (mt ).
    Assume now that the central bank conducts an open market operation, and changes the monetary base with 4B.
    The currency-deposit ratio and the reserve-deposit ratio remain constant at the values which you found above. As
    a result, the monetary system converges to a new equilibrium in period T . Compute then the following variables
    for period T :
    6. The money multiplier (mT ).
    7. Currency in circulation (CT ).
    8. The reserves (RT ).
    9. Demand deposits (DT ).
    10. The money supply (MT ).
    Do the exercise for parameter sets A, B, C and D in the table below. Note that the money supply in this exercise
    refers to M 1.

    A B C D

    Ct 200 50 40 1000
    Rt 100 100 50 400
    Dt 400 500 200 2000
    4B 30 6 -9 -350

    2 A change in the currency-deposit ratio


    Consider a monetary system which is in equilibrium in period t. Currency in circulation, reserves and demand
    deposits are given by Ct , Rt and Dt , respectively. Compute then the following variables for period t:
    1. The monetary base (Bt ).
    2. The money supply (Mt ).

    ©2023 Koen Vermeylen Page 1 of 3


    Homework 3

    3. The currency-deposit ratio (crt ).


    4. The reserve-deposit ratio (rrt ).
    5. The money multiplier (mt ).

    Assume now that the currency-deposit ratio changes, and becomes crT . The reserve-deposit ratio and the monetary
    base remain constant at the values which you found above. As a result, the monetary system converges to a new
    equilibrium in period T . Compute then the following variables for period T :
    6. The money multiplier (mT ).
    7. Currency in circulation (CT ).
    8. The reserves (RT ).
    9. Demand deposits (DT ).
    10. The money supply (MT ).
    Do the exercise for parameter sets A, B, C and D in the table below. Note that the money supply in this exercise
    refers to M 1.

    A B C D

    Ct 80 140 450 100


    Rt 40 70 90 50
    Dt 200 700 450 200
    crT 3/5 2/5 4/5 1/4

    3 A change in the reserve-deposit ratio


    Consider a monetary system which is in equilibrium in period t. Currency in circulation, reserves and demand
    deposits are given by Ct , Rt and Dt , respectively. Compute then the following variables for period t:

    1. The monetary base (Bt ).


    2. The money supply (Mt ).
    3. The currency-deposit ratio (crt ).
    4. The reserve-deposit ratio (rrt ).
    5. The money multiplier (mt ).

    Assume now that the reserve-deposit ratio changes, and becomes rrT . The currency-deposit ratio and the monetary
    base remain constant at the values which you found above. As a result, the monetary system converges to a new
    equilibrium in period T . Compute then the following variables for period T :
    6. The money multiplier (mT ).
    7. Currency in circulation (CT ).
    8. The reserves (RT ).
    9. Demand deposits (DT ).
    10. The money supply M (MT ).
    Do the exercise for parameter sets A, B, C and D in the table below. Note that the money supply in this exercise
    refers to M 1.

    A B C D

    Ct 500 800 450 300


    Rt 100 100 300 300
    Dt 500 1000 900 1200
    rrT 1/4 1/5 1/4 1/6

    ©2023 Koen Vermeylen Page 2 of 3


    Homework 3

    Answers
    1. An open market operation

    A B C D
    1. Bt = 300 1. Bt = 150 1. Bt = 90 1. Bt = 1400
    2. Mt = 600 2. Mt = 550 2. Mt = 240 2. Mt = 3000
    3. crt = 1/2 3. crt = 1/10 3. crt = 1/5 3. crt = 1/2
    4. rrt = 1/4 4. rrt = 1/5 4. rrt = 1/4 4. rrt = 1/5
    5. mt = 2 5. mt = 11/3 5. mt = 8/3 5. mt = 15/7
    6. mT = 2 6. mT = 11/3 6. mT = 8/3 6. mT = 15/7
    7. CT = 220 7. CT = 52 7. CT = 36 7. CT = 750
    8. RT = 110 8. RT = 104 8. RT = 45 8. RT = 300
    9. DT = 440 9. DT = 520 9. DT = 180 9. DT = 1500
    10. MT = 660 10. MT = 572 10. MT = 216 10. MT = 2250

    2. A change in the currency-deposit ratio

    A B C D
    1. Bt = 120 1. Bt = 210 1. Bt = 540 1. Bt = 150
    2. Mt = 280 2. Mt = 840 2. Mt = 900 2. Mt = 300
    3. crt = 2/5 3. crt = 1/5 3. crt = 1 3. crt = 1/2
    4. rrt = 1/5 4. rrt = 1/10 4. rrt = 1/5 4. rrt = 1/4
    5. mt = 7/3 5. mt = 4 5. mt = 5/3 5. mt = 2
    6. mT = 2 6. mT = 14/5 6. mT = 9/5 6. mT = 5/2
    7. CT = 90 7. CT = 168 7. CT = 432 7. CT = 75
    8. RT = 30 8. RT = 42 8. RT = 108 8. RT = 75
    9. DT = 150 9. DT = 420 9. DT = 540 9. DT = 300
    10. MT = 240 10. MT = 588 10. MT = 972 10. MT = 375

    2. A change in the reserve-deposit ratio

    A B C D
    1. Bt = 600 1. Bt = 900 1. Bt = 750 1. Bt = 600
    2. Mt = 1000 2. Mt = 1800 2. Mt = 1350 2. Mt = 1500
    3. crt = 1 3. crt = 4/5 3. crt = 1/2 3. crt = 1/4
    4. rrt = 1/5 4. rrt = 1/10 4. rrt = 1/3 4. rrt = 1/4
    5. mt = 5/3 5. mt = 2 5. mt = 9/5 5. mt = 5/2
    6. mT = 8/5 6. mT = 9/5 6. mT = 2 6. mT = 3
    7. CT = 480 7. CT = 720 7. CT = 500 7. CT = 360
    8. RT = 120 8. RT = 180 8. RT = 250 8. RT = 240
    9. DT = 480 9. DT = 900 9. DT = 1000 9. DT = 1440
    10. MT = 960 10. MT = 1620 10. MT = 1500 10. MT = 1800

    ©2023 Koen Vermeylen Page 3 of 3

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