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An economy has a monetary base of 100$ bills. People hold equal amounts of currency and demand deposits. Banks has 20% of deposits as reserves.
a. What is the money multiplier? Compute the money supply.
b. The central bank decides to increase the money supply by 10%. How much should it increase the monetary base?
An economy has a monetary base of 100$ bills. People hold equal amounts of currency and demand deposits. Banks has 20% of deposits as reserves.
a. What is the money multiplier? Compute the money supply.
b. The central bank decides to increase the money supply by 10%. How much should it increase the monetary base?
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