Name: Wayne Jones
Chapter 2 Homework Exercises
Question 1
The ¿ M 1 money supply=currency plus traveler ’ s checks+ Demand deposits+ other checkable deposits
The ¿ M 1 money supply=$ 25 million +$ 13 million+ $ 12million
The ¿ M 1 money supply=$ 50 million
Question 2
The ¿ M 1 money supply=currency + Demand deposits+ other checkable deposits +traveler ’ s checks
The ¿ M 1 money supply=$ 700 b illion+ $ 300 b illion+ $ 300 bi llion+10 billion
The ¿ M 1 money supply=$ 1310 billion
Question 3
M1 money supply= currency+ Demand deposits+ other checkable deposits+ traveler’s checks
M 1 money supply=$ 700 billion+ $ 300 billion+$ 300 billion+10 billion
M 1 money supply=$ 1310 billion
Next year M1=currency*(1+10%)+ Demand deposits*(1+5%)+ other checkable deposits*(1+8%)+
traveler’s checks
Next year M1=700*(1+10%)+ 300*(1+5%)+ 300*(1+8%)+ 10
Next year M1=700*1.1+ 300*1.05+ 300*1.08+ 10
Next year M1=$1419 billion
Question 4
a.
Solution
Travelers checks=$1 million
Coin and paper currency=$30 million
Demand deposits =$25 million
Other checkable deposits =$35 million
M 1 money supply=travelers checks+ coin∧ paper currency+ demand dep osits +other checkable deposits
M 1 money supply=$ 1 million+ $ 30 million +$ 25 million+$ 35 million
M 1 money supply=$ 91 millio n
b.
Solution
M 1 money supply=$ 91 millio n
Retail money market mutual funds = $60 million
savings accounts at depository institutions = $40 million
small-denomination time deposits = $45 million
M 2 money supply=M 1 money supply+¿ Retail money market mutual funds+ savings accounts at
depository institutions+ small-denomination time deposits
M 2 money supply=$ 91 million +$ 60 million+ $ 40 million+ $ 45 millio n
M 2 money supply=$ 236 millio n
Question 5
a.
Solution
GDP 20 bill ion
Velocity of money= = =4.0
MS 5 billion
b.
Solution
GDP=MS*Velocity of money
GDP=$5*4.5
GDP=$22.5 billion
c.
Solution
GDP
Money supply=
velocity
22
Money supply= =$ 5.5billion
4
Increase=5.5 billion-5 billion=0.5 billion
0.5
Percentage increase ∈MS = ∗100=10 %
5
Question 6
a.
GDP=Real output ( RO)∗Pricelevel ( PL)
GDP=2.4 million∗$ 250
GDP=$ 600 million
b.
solution
Price level (PL)=GDP/Real output
Price level (PL)=8 million/2.4 million= $ 3.33
c.
Solution
GDP=Real output*(price level1+price level2)/2
GDP=2.4 million*(100+500)/2
GDP=2.4 million*300
GDP=720 million
Question 7
a.
Solution
Velocity based on M 1 Money supply=GDP/ MS 1=$ 100 million/$ 20 million=5.0
b.
Solution
Velocity based on M 2 Money supply=GDP /MS 2=$ 100 million/ $ 5 0 million=2.0
c.
Solution
Average price for real output=¿ GDP/real Output of the country=$100,000,000/500,000= $200
Question 8
a.
Solution
M1 New money supply=$20 million*1.10=22 million
Velocity =5
Expected GDP= MS1*velocity= 22 million*5= $110 million
b.
Solution
Average price for real output=¿ GDP/real Output of the country=$110,000,000/500,000= $220
Percentage change=(220-200)/200*100
Percentage change=20/200*100=10%
c. .
New M2 Money supply= 50 million*0.9= $45 million
Expected GDP Next year= MS2*Velocity =$45 million*2.0=$90 million.
d.
Solution
Expected real output=GDP/PL
Expected real output=90 million/$200= 450000 units
