Calculate the percentage change in equilibrium level, Financial Accounting

Consider a hypothetical banking system in which banks produce only demand deposit accounts. The currency deposit ratio (c) is 30% and the customary cash reserve ratio (r) for demand deposits is 10%. The money supply in existence is $1750 million.

(i) Calculate the percentage change in the equilibrium level of the money supply after the central bank decreases the monetary base by $250 million through its sale of Government of Canada treasury bills in the money market;

(ii) Calculate the amount of bank reserves held against demand deposits;

(iii) Calculate the new level of the money supply after the central bank's open market sale of the government securities;

(iv) Calculate the percentage change in the money supply if the cash reserve ratio were instead reduced to 6%. Explain your results and illustrate your answers in both cases with the appropriate diagrams.

Posted Date: 2/18/2013 7:23:51 AM | Location : United States







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