Calculate the Extended Money Multiplier - Finance Assignment Help

Assignment Task :

Question 1 on Topic 4  

1. The average hourly wage in 1975 was $6.50, and $17 in 2002. CPI stood at 42 in 1975 and the CPI base year is 2002. 

2. Calculate the rate of inflation between 1975 and 2002.

3. What is the average hourly wage in 2002 in real terms (i.e. in terms of the 1975 average hourly wage)?

4. In terms of living standards, is the worker better off in 1975 or 2002? Justify your answer.

5. Why might banks be reluctant to lend money if a country has a history of inflation rising unexpectedly? Justify your answer(s).  

Question 2 on Topic 5  

1. Most people in the country of Classica tend to keep $3 out of every $100 of their cash holdings in their wallets. The central bank has instructed the commercial banks to also hold 4% of all bank deposits as reserves.

2. Calculate the extended money multiplier 

3. Suppose that in 2018 customers deposit $4,000 into their bank accounts. Based on the extended money multiplier calculated in part (i), calculate the total amount which the money supply in the banking system will eventually increase to. Show all steps involved in the calculation.  

4. In which situation can the simple money multiplier value equal that of the extended money multiplier value? Justify your answer with a numerical example.

Question 3 on Topics 6 & 8 

1. Inflation in Theoretica is currently below the target range of its central bank. What does this tell you regarding Theoretica’s likely output gap? Illustrate it using an AS-AD diagram, and briefly explain your diagram 

2. Your mother states that lowering interest rates in the recessionary COVID-19 period is good policy because it will guarantee consumers will spend more as it is cheaper to borrow money. Do you agree or disagree with her statement? Provide two reasonings to justify your answer.

3. Is either helicopter money or quantitative easing preferred in times of severe recessions in order to boost economic activity? Briefly explain your reasoning

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