Problem
1. If the currency in circulation is $200 billion, checkable deposits are $800 billion, the required reserve ratio is 5%, and excess reserves total $8 billion. What are the money supply, monetary base, and money multiplier?
2. Assume that, in order to increase the money supply, the required reserve ratio is decreased to 1%. Assume the excess reserve ratio and currency ratio do not change. How does this affect the money supply and money multiplier?
3. What is the velocity of money? Suppose the velocity of money and aggregate output are reasonably constant. What will happen to the price level when money supply decreases from 8 trillion GBP to 4 trillion GBP?
4. Russia is a major exporter of oil, wheat, and palladium. The war in Ukraine lead to a negative supply shock and push up the price of gasoline. How does the negative supply shock influence the short-run aggregate supply curve? If the long-run aggregate supply curve does not change, how does the negative supply shock affect the AD-AS equilibrium? Please illustrate your answer using a diagram.