Treasury of sold bonds to finance the budget deficit

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In the Republic of? Ragu, the currency is the rag. During? 2009, the Treasury of Ragu sold bonds to finance the Ragu budget deficit. In? all, the Treasury sold? 50,000 10-year bonds with a face value of 100 rags each. The total deficit was 5 million rags.? Further, assume that the Ragu Central Bank reserve requirement was 20 percent and that in the same? year, the bank bought? 500,000 rags' worth of outstanding bonds on the open market.? Finally, assume that all of the Ragu debt is held by either the private sector? (the public) or the central bank. a. The combined effect of the Treasury sale and the central bank purchase on the total Ragu debt outstanding is a change in overall debt of (5,000,000 - 0 - 50,000,000 - 4,500,000 - 2,500,000) rags? and, in? particular, the debt held by the private sector increases by (5,000,000 4,500,000 -5,000,000 0 -4,500,000 500,000) rags.

Reference no: EM131253257

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