1 Illustrate a simple balance sheet of the central banks of Japan and Australia. Show in your diagram the effect on the components of the monetary base of each nation of the Bank of Japan selling A$1 million bank deposits. Assume that the spot exchange rate is 58.6 yen-per-Australian dollar (\/A$). 2. Suppose that the reserve requirement in Australia is 20 percent and that the reserve requirement in Japan is 8 percent. Also suppose that the monetary base consists only of transactions deposits. Using the information in Question 1, what is the maximum possible change in the money stock in each nation?

Principles of Economics 2e
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Chapter29: Exchange Rates And International Capital Flows
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1 Illustrate a simple balance sheet of the central banks of Japan and Australia. Show in
your diagram the effect on the components of the monetary base of each nation of the
Bank of Japan selling A$1 million bank deposits. Assume that the spot exchange rate is
58.6 yen-per-Australian dollar (\/A$).
2. Suppose that the reserve requirement in Australia is 20 percent and that the reserve
requirement in Japan is 8 percent. Also suppose that the monetary base consists only of
transactions deposits. Using the information in Question 1, what is the maximum possible
change in the money stock in each nation?
Transcribed Image Text:1 Illustrate a simple balance sheet of the central banks of Japan and Australia. Show in your diagram the effect on the components of the monetary base of each nation of the Bank of Japan selling A$1 million bank deposits. Assume that the spot exchange rate is 58.6 yen-per-Australian dollar (\/A$). 2. Suppose that the reserve requirement in Australia is 20 percent and that the reserve requirement in Japan is 8 percent. Also suppose that the monetary base consists only of transactions deposits. Using the information in Question 1, what is the maximum possible change in the money stock in each nation?
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