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First, explain the concept of the money multiplier. Then from the information that the narrow money supply (MI) in a hypothetical Canadian economy (with a competitive banking system in which banks produce only demand deposits) is $1750 million and the idle excess reserves drain coefficient (e) is 3%, the desired cash reserve ratio (r) for demand deposits is 8%, and the currency/deposit ratio (e) is 30%, apply the multiplier model discussed in class or chapter 15 of the textbook to determine and calculate: (i). The equilibrium level of the monetary base (MB); (ii) the equilibrium level of demand (shequable deposits (D); (iii) the total amount of cash reserves held by banks (BCR), the amount of currency (C) held by the non-bank public; (iv) the amount of bank loans (BL) and (v) the values of the deposit multiplier (dm) and the money multiplier (mm). Lastly, (vi) Use diagrams to ILLUSTRATE your answers, where necessary.

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