Econ 1102 Recitation 7 Gina Pieters Recitation 7 A Monetary Policy A Monetary Policy Money Demand 1000 10000i Loanable Funds Demand 200 1000i Initial Deposits 50 GDP gap 100 Reserve Ratio 25 MPC 0 8 1 Suppose the Fed uses OMO to close the GDP gap What value of bonds does it need to buy sell 2 Suppose the Fed uses reserve ratio to close the GDP gap What is the new reserve ratio Practice Problems Page 1 of 2 Econ 1102 Recitation 7 Gina Pieters Money Demand 1800 200i Loanable Funds Demand 800 100i Initial Reserves MS 200 GDP gap 100 Reserve Ratio 20 MPC 0 5 1 What is the Money Supply in this economy 2 What is the initial demand for Loanable funds Suppose that the Fed implements monetary policy to return the economy to equilibrium 3 Should the Fed buy or sell bonds 4 What value of bonds will the Fed buy sell to close the GDP gap 5 Suppose economists consider changing the Reserve Ratio instead What will the new reserve ratio be Page 2 of 2
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