QUESTION 4: (13 points] Answer all questions below given the following information: Suppose Banks in the Banking system

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Question 4 13 Points Answer All Questions Below Given The Following Information Suppose Banks In The Banking System 1 (194.01 KiB) Viewed 33 times

QUESTION 4: (13 points] Answer all questions below given the following information: Suppose Banks in the Banking system increase their borrowings from the FED by $30million. Assume that rr=0.2, e=0.05 and c=0.25. ****************** SHOW ALL WORK! ****************** a. [5 points] Use T-accounts to show the impact on the Fed's Balance Sheet and the balance sheet of the banking system. At the end clearly write down the impact on: R, MBn, BR and the MB; in each case provide the # and the directional change (rise or fall). :- T-accounts must be used to get full credit. b. [2 points] Use your results from a) to calculate the impact on Money Supply according to the Simple Model? Calculate. SHOW WORK. c. [2 points] Use your results from a) to calculate the impact on the Money Supply according to the 2nd model (i.e. the “complex model”)? Calculate. SHOW WORK. d. [2 points] What are all the factors that explain the difference in the impact on the money supply between the Simple model (part b) and the Complex model (part c)? Discuss by providing economic reasoning for the differences; include intuition. e. points] What is the definition of money supply, in the Simple model and the Complex model (Model 2)? Just state (provide definition).