Your boss, the Chair of the Central Bank of Zargadee, seeks your advice about monetary policy. For part B below, B) The central bank decreases the reserve requirement to 5% i) Conceptually explain the effect of the policy on the money supply. ii) Calculate the change in M1 given our assumptions. iii) Construct the new balance sheet of the consolidated banking system of Zargadee under the new policy. iv) When the money supply changes, list a chain of events to make a prediction using the Aggregate Demand / Aggregate Supply framework about the change in real output in the short run.
Your boss, the Chair of the Central Bank of Zargadee, seeks your advice about monetary policy. For part B below, B) The central bank decreases the reserve requirement to 5% i) Conceptually explain the effect of the policy on the money supply. ii) Calculate the change in M1 given our assumptions. iii) Construct the new balance sheet of the consolidated banking system of Zargadee under the new policy. iv) When the money supply changes, list a chain of events to make a prediction using the Aggregate Demand / Aggregate Supply framework about the change in real output in the short run.
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter13: Money And The Banking System
Section: Chapter Questions
Problem 18CQ
Related questions
Question
![Assets
Reserves
Cash in Vault
Liabilities
Deposits
Borrowing from CBZ
1200
50
200
Deposits at CBZ
Total Reserves
70
120
Bonds
370
Loans
910
Total Assets
1400
Total Liabilities
1400
Assume that 1) households hold no currency and 2) banks hold no excess reserves.
The current reserve requirement is 10%.
The Central Bank of Zargadee uses three traditional tools to perform monetary policy in an
economy that is reserve constrained.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fca16b239-472b-4e9c-812b-bccda92e148b%2F2db6ed70-d004-4ed1-998f-2d526ec401da%2Fnsnoask_processed.png&w=3840&q=75)
Transcribed Image Text:Assets
Reserves
Cash in Vault
Liabilities
Deposits
Borrowing from CBZ
1200
50
200
Deposits at CBZ
Total Reserves
70
120
Bonds
370
Loans
910
Total Assets
1400
Total Liabilities
1400
Assume that 1) households hold no currency and 2) banks hold no excess reserves.
The current reserve requirement is 10%.
The Central Bank of Zargadee uses three traditional tools to perform monetary policy in an
economy that is reserve constrained.
![Your boss, the Chair of the Central Bank of Zargadee, seeks your advice about monetary policy.
For part B below,
B) The central bank decreases the reserve requirement to 5%
i) Conceptually explain the effect of the policy on the money supply.
ii) Calculate the change in M1 given our assumptions.
iii) Construct the new balance sheet of the consolidated banking system of Zargadee under the
new policy.
iv) When the money supply changes, list a chain of events to make a prediction using the
Aggregate Demand / Aggregate Supply framework about the change in real output in the short
run.
Then, using the Aggregate Demand / Aggregate Supply framework (use a graph), determine
v) the short run effect on the price level and real output and
vi) the long run effect on the price level and real output and
vii) the total effect of the policy on the price level and real output.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fca16b239-472b-4e9c-812b-bccda92e148b%2F2db6ed70-d004-4ed1-998f-2d526ec401da%2Fu05wf4_processed.png&w=3840&q=75)
Transcribed Image Text:Your boss, the Chair of the Central Bank of Zargadee, seeks your advice about monetary policy.
For part B below,
B) The central bank decreases the reserve requirement to 5%
i) Conceptually explain the effect of the policy on the money supply.
ii) Calculate the change in M1 given our assumptions.
iii) Construct the new balance sheet of the consolidated banking system of Zargadee under the
new policy.
iv) When the money supply changes, list a chain of events to make a prediction using the
Aggregate Demand / Aggregate Supply framework about the change in real output in the short
run.
Then, using the Aggregate Demand / Aggregate Supply framework (use a graph), determine
v) the short run effect on the price level and real output and
vi) the long run effect on the price level and real output and
vii) the total effect of the policy on the price level and real output.
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Economics: Private and Public Choice (MindTap Cou…](https://www.bartleby.com/isbn_cover_images/9781305506725/9781305506725_smallCoverImage.gif)
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
![Macroeconomics: Private and Public Choice (MindTa…](https://www.bartleby.com/isbn_cover_images/9781305506756/9781305506756_smallCoverImage.gif)
Macroeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506756
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
![Principles of Economics 2e](https://www.bartleby.com/isbn_cover_images/9781947172364/9781947172364_smallCoverImage.jpg)
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
![Economics: Private and Public Choice (MindTap Cou…](https://www.bartleby.com/isbn_cover_images/9781305506725/9781305506725_smallCoverImage.gif)
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
![Macroeconomics: Private and Public Choice (MindTa…](https://www.bartleby.com/isbn_cover_images/9781305506756/9781305506756_smallCoverImage.gif)
Macroeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506756
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
![Principles of Economics 2e](https://www.bartleby.com/isbn_cover_images/9781947172364/9781947172364_smallCoverImage.jpg)
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
![Macroeconomics](https://www.bartleby.com/isbn_cover_images/9781337617390/9781337617390_smallCoverImage.gif)
![Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781337617383/9781337617383_smallCoverImage.gif)
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning