Money Market Assume that the economy is described by the following facts. Money Demand: M $Y (0.1- i) Nominal income: $Y = 20.000 The central bank requires a reserve ratio of θ = 20% People keep - of their monev demand as currency and the rest as deposits, The supply of central bank money is Hs 500 The money multipliers is : 1 a. Calculate the money multiplier, cua, Dd, Rd, Hd, (the demand for central bank money, and the equilibrium i b. Now assume that the central bank announces an increase of 1 by 1.5% from the level you calculated in part a). Keep nominal income and the other parameters (c,0 ) constant. What does the central bank have to do in order to obtain what was announced? Calculate and explain. c. Suppose now that after the monetary policy operation the people decide to hold a smaller part of their income as currency: c - to equilibrium i? Explain. Keeping $Y at 20000, what happens 16

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