Consider an economy with a constant population in which people wish to hold bank checking deposits...

Consider an economy with a constant population in which people wish to hold bank checking deposits worth a total of 7,000 goods in every period. The economy has a total endowment of 15,000 goods in each period. There is a total stock of unintermediated capital of 2,000 goods in each period. Bank deposits are the only form of money in the economy. Deposits at banks are subject to a reserve requirement of 15%. The net real rate of return to capital is 7% per period. After meeting the reserve requirement, banks invest the remainder of all deposits into capital. The fiat money stock is $1,000 in every period. Calculate the values for the following variables:

1-The net real rate of return on deposits offered by competitive banks. Briefly explain each component.

2- The total nominal money stock "M1".

3- The money multiplier

4- The capital stock. Briefly explain who holds capital

5- Real GDP. Briefly explain each component of GDP.

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Expert Solution

Rahul Sunny answered 3 weeks ago

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