Calculate quantity of money in economy lending-depositing

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Reference no: EM133295131

Assignment:

There was no money in the economy until the central bank bought $200 worth of treasuries. In the first round of lending-depositing, the banks formed $34 of reserves and people retained $16 as paper currency.

(a) Find the desired reserve rate and the currency drain rate. Show work.

(b) Draw a scheme of blocks and arrows that shows how the money was created in the first round of lending-depositing. Calculate the quantity of money in the economy at the end of the first round of lending-depositing.

Reference no: EM133295131

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