DSE 20-08

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

Suppose the public always hold $800 million cash and the banking system does not hold excess reserves.

(a) Find the monetary base and money supply in Country A. (2 marks)

(b) Suppose firms withdraw $700 million from the banking system and remit the whole amount overseas

(i) Find the change in monetary base in Country A. (1 mark)

(ii) Calculate the maximum possible change in money supply in Country A. Show your workings. (3 marks)