1

Exercices:2, 3, 4, 9.

2. "If
as of confidence loss in tine bank system, households decide to reduce the
consequence a

deposits and keep

amount of more money in cash, the supply
money world increase". Agree or not?

FALSE, money supply onlydepends on the CB.

The first
part its true, if
there is a confidence loss on the bank system, deposits will decrease and cash

will increase, but it's false

the second part because the money supplywould not
increase.

u Deposits
-

M CONFIDENCE
if
BANKING
IN THE V
↳ c < cs [Mcte.}
Money supply SYStEM
M CS D
=
= +

3. "By setting the compulsory ratio of bank reserves to deposits the CB has an exact estimation of
the

value of
the monetary multiplier).Agree or Not?

The MM depends on 2 ratios rd=(R/D):Reserves to deposits ratio.

<Cd CCS/D):cash to
=

deposits ratio.

e
Disagree, to have an exact estimation of the MM

mm- Mm = = you also need the cash to deposits ratio.

4. Explain 4 ways in which the CB can directly increase the monetary base (BM). Divide them
bw. conventional and non-conventional monetary policy.

A. CONVENTIONAL MONETARY POLICY INSTRUMENTS

1. OPEN MARKETS OPERATIONS

2. REFINANCING OPERATIONS
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3. RESERVE
REQUIREMENTS

B. UNCONVENTIONAL MONETARY POLICY INSTRUMENTS

1. QANATIVE
EASING

2
IVE EASING

9. Consider this equation considering the Phillips Curve and the Okun's law

y+
-

y t 0.5(H+ RE)
=
- (3)

where the inflation rate is expressed in percentage points. Also we assume the following mechanism of

expectations:

HE Rt=
=
> Mt M
=
(4)
+1

MEE nt 4tm H+
=
=

(5)

a) Interpret the last 2 equations.

If
the expected inflation is equal to the inflation
current (the CB cheat and
does not inflation is the
(4)
one said) in th they will achieve the target,

15) If
expected inflation equal to currentinflation
is not (CB cheats) people won't
belive them more and inflation

in t+1 will be equal to current

inflation.
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b) F 2% =

at + c4t 100
=
and its growing a 2% per year, and MEFR att,
Mt 5 =
calculate fort, tH1 and t+ 2

>M

>output gap
> Annual growth rate of production.

INFLATION OUTPUTGAP
RATE ANNUAL GROWTH RATE
OFPRODUCTION

at t it 4 2%
=

0 21
y+ y
= =
-

t1 +
2.1. O 21

t2 O 2%
+

2%

C) +#1 >
M++1 5%
=

INFLATION OUTPUTGAP
RATE ANNUAL GROWTH RATE
OFPRODUCTION

at t 2% ⑧

t1 +

5% >0

t2
+

5% 0
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d

INFLATION RATE OUTPUT GAP ANNUAL GROWTH RATE

OFPRODUCTION

at t
2.1 O

t1+

5% >0

t2 <O
2.
+