Question

Question-2) Fill in the blanks in the following table by determining first whether x & y vary directly or inversely:
X 02 03 04 ? 08 Y 48 ? 24 16 ?

Answer 1

Answer:

In an economy where individuals demand half of their money as currency and

half as checkable deposits, an increase in high-powered money by the Central

Bank has a larger effect on interest rates and output than in an economy where

individuals hold all of their money as cash.

Step-by-step explanation:

True. The money multiplier in an economy where individuals demand half of

their money in currency and half as checkable deposits is 1/(.5+.5q) which is higher than

1 as it would be in an economy where individuals would hold all their money as cash.

Therefore an increase in high-powered money by the Central Bank has a larger effect

(provided that banks do not keep all their money in reserves, q<1, in which case the

money multiplier would always be 1).