Canada has a fractional reserve bank system, the reserve requirement is 25% and the bank in canada holds no excess reserves. 

Susy deposits 100k in the bank A with no equity

What is the max loan the bank could make

What is the max possible change in demand

Max possible change in money supply, <> = demand  and explain

At a 25,000 worth security equity exists leverage ratio

One good

Ice cream

Y = 800

V is constant

2014 at $5  = 4,000

Fed raises money supply in the future (2015)

The price then is 10 per carton and the fed increases the money supply by 10%

According to the fisher affect what happened to the real interest rate, nominal, in 2015

Compute inflation rate from 2014 to 2015 and use monetary neutrality

Sketch a graph for both 2014 and 2015

Illustrate initial equilibrium 

A inflation rate went up 6.8%

Two policies the gov could implement

What happened to the price level employment real gdp

What happened to short run and long run as a result

B CPI went up 6.8, so the federal reserve wondered how they could help

What happened to the price level employment real gdp

What happened to short run and long run as a result






GDP is 4000 at natural rate

  1.  Interest rate is 8% solve for gdp

  2. No change in monetary policy, how can the gov restore employment in two different ways

  3. No change in fiscal policy, change in interest, what would restore employment and what would happen to aggregate demand

Spending multiplier is equal to intercept mean. Assume the government spending goes up by 10,000,000

How much initially spent


C 100 +75 (y-t)




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