You are given the following information for a hypothetical economy. r = required reserve ratio= 0.10 c = currency ratio=

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You are given the following information for a hypothetical
economy.
r = required reserve ratio= 0.10
c = currency ratio= 0.5
D = checkable deposits= k800 billion
e =excess reserve ratio = 0.001
(a) Calculate the value of the following:
a. Total reserves (1.5 marks)
b. Currency in circulation (1.5 marks)
c. Monetary base (1.5 marks)
d. Money supply (1.5 marks)
e. Money multiplier (and interpret it) (2.5 marks)
(b) Suppose the central bank sells bonds to the public for k100b,
who pay with cash: calculate the value for the following
(i) The amount of currency in circulation (1.5 marks)
(ii) The currency ratio (1.5 marks)
(iii) Monetary base (1.5 marks)
(iv) Money multiplier (1.5 marks)
(v) Money supply (1.5 marks)
(c) Explain the effect of the above open market sale on: the
monetary base, money multiplier and money supply. (Specify clearly
which components of the monetary base, money multiplier and money
supply are affected). (2.5 marks)
(d) Keeping all variables unchanged as in the original question,
suppose instead, the central bank raises the required reserve ratio
to 20%. Calculate the value for the following:
(i) Monetary base (1.5marks)
(ii) money multiplier (1.5 marks)
(iii) Money supply (1.5 marks)
(iv) Total deposits (1.5 marks)
(v) Total reserves. (1.5 marks)
(vi) Currency in circulation (1.5 marks)
(e) Explain the effect of the above increase in reserve requirement
on: monetary base, money multiplier and money supply. (Specify
clearly which components of the monetary base, money multiplier and
money supply are affected). (2.5 marks)