uppose that the economy has the following money supply and demand equations: Money Supply: M = 8000 Money Demand: M= 10,000 – 40,000r where money is in billions of dollars and interest rates, r , is written as a decimal (e.g., an interest rate of 10% would be written as .1 in the equation). A. Determine the equilibrium interest rate and quantity of money. B. What will happen in the money market if the interest rate is currently 10%? What is the amount of excess supply of or excess demand for money? C. Show in graph that at this interest rate (10%) there is disequilibrium in the money market.
Suppose that the economy has the following money supply and
Money Supply: M = 8000
Money Demand: M= 10,000 – 40,000r
where money is in billions of dollars and interest rates, r , is written as a decimal
(e.g., an interest rate of 10% would be written as .1 in the equation).
A. Determine the equilibrium interest rate and quantity of money.
B. What will happen in the
What is the amount of
C. Show in graph that at this interest rate (10%) there is disequilibrium in the
money market.
2. Assume that a particular bank has
deposits of Php1,500,000. If the reserve ratio is 20%, what is the size of the bank’s
actual reserves?
3. Suppose that GRAB Bank is a newly created bank in your hometown. Consider the
following transactions:
Owners of the bank sold shares of stocks to the public (which includes owners’
equity) amounting to P1,000,000.
To fully operate, GRAB Bank purchased physical assets amounting to
P500,000 (with approximate useful life of assets of 20 years and salvage value
approximated at P100,000).
First deposit to the bank (in the form of checkable deposits) was accepted from
individuals and business firms amounting to P200,000.
Now suppose that the BSP mandated all commercials banks to keep a fraction
out of the total deposit valued at 25%
Required: Trace the changes in GRAB Bank’s balance sheet, starting with the first
transaction up to the last transaction cited above.
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