DSE 15-06

Study the following balance sheet of the banking system in Country A.

Suppose all banks are fully loaned up and never hold excess reserves. The public always holds $150 million in cash.

(a) Calculate the following items of this banking system:

(i) legal reserve ratio (1 mark)

(ii) money supply (2 marks)

A firm in Country A has received $50 million from abroad and deposited the sum of money into a bank.

(b) Calculate the new monetary base in Country A. Show your workings. (2 marks)

(c) Calculate the new money supply in Country A. Show your workings. (3 marks)