Embedded Files
The following is the balance sheet of a banking system.
Suppose the public always holds $500 million of cash and the banking system does not hold excess reserves.
(a) Calculate the monetary base and money supply. (2 marks)
The central bank increases the required reserve ratio to 50%.
(b) Calculate the change in monetary base and the change in money supply. Show your working. (4 marks)
(c) (i) Why is money supply often a few times more than monetary base? (3 marks)
(ii) Under what situation will money supply be equal to monetary base? (1 mark)
Page updated
Report abuse