Consider an economy with a constant in which people wish to

Question

Consider an economy with a constant in which people wish to hold bank checking deposits worth a total of 5,000 goods in every period. The economy has a total endowment of 10,000 goods in each period. There is a total stock of unintermediated captal of 1,000 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 20 percent. The real rate of return on capital is x = 1.10 per period. After meeting the reserve requirement, banks invest the remainder of all deposits into capital. Individuals do not hold capital. The fiat money stock (monetary base) is $2000 in every period. Calculate the following variables:

1. The price of a good (in dollars).
2. The gross real rate of return on deposits that will be offered by banks in a competitive economy.
3. The total nominal money stock M1.
4. The money multiplier.
5. The total capital stock.
6. Real GDP.