Suppose the banking system holds no excess reserves. If the ...

[imowrer]

Suppose the banking system holds no excess reserves. If the required reserve ratio is 0.10 and the money multiplier is 2.5, what is the value of the currency-deposit ratio?
 
  What will be an ideal response?

Question 2

A government policy that is consistent with real business cycle theory would be for
 
  A) government to vary its spending in response to shocks to total factor productivity.
  B) the monetary authority to expand and contract the nominal money supply in response to shocks to total factor productivity.
  C) government to smooth out tax distortions over time.
  D) government to vary its lump-sum tax collections in response to changes in total factor productivity.

[ladyjames123]

Answer to Question 1

(1 + (C/D))/((C/D) + 0.10 ) = 2.5; 1 + C/D = 2.5((C/D) + 0.1 ); 0.75 = 1.5(C/D); C/D = 0.5

Answer to Question 2

C

[imowrer]

Gracias!

[sultansheikh]

YES! Correct, THANKS for helping me on my review