26) In which of the following situations would you prefer to be the lender?

SCENARIO 4. Notation: C = currency; D = demand deposits; T = time deposits; & S = saving deposits. Suppose M1 = C + D; M2 = C + D + T; M3 = C + D + T + S. Suppose also that C = .05D; T = .4D; & S = .3D. The Fed imposes the following reserve requirements: rd = .2; rt = .3; rs = .15. Banks keep the following excess reserve ratios: ed = .05; et = .06; & es = .07. Suppose D = $800. Hint: Find the money multiplier to answer the following questions. Also note that MS = m.MB 23) Refer to Scenario 4. For the money supply M1, the monetary base MB1 = $______. 24) Refer to Scenario 4. For the money supply M2, the monetary base MB2 = $______. 25) Refer to Scenario 4. For the money supply M3, the monetary base MB3 = $______.

26) In which of the following situations would you prefer to be the lender? A) The interest rate is 9 percent and the expected inflation rate is 7 percent. B) The interest rate is 13 percent and the expected inflation rate is 15 percent. C) The interest rate is 25 percent and the expected inflation rate is 50 percent. D) The interest rate is 4 percent and the expected inflation rate is 1 percent.

27) In which of the following situations would you prefer to be the borrower? A) The interest rate is 9 percent and the expected inflation rate is 7 percent. B) The interest rate is 4 percent and the expected inflation rate is 1 percent. C) The interest rate is 13 percent and the expected inflation rate is 15 percent. D) The interest rate is 25 percent and the expected inflation rate is 50 percent.

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Expert Solution

Rahul Sunny answered 1 year ago

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