Consolidated Balance Sheet of the Entire Economy of Zargadee 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. a. Under our assumptions, what is the money multiplier? Your boss, the Chair of the Central Bank of Zargadee, seeks your advice about monetary policy. For each part (b)-(d) below, 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.

Consolidated Balance Sheet of the Entire Economy of Zargadee 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. a. Under our assumptions, what is the money multiplier? Your boss, the Chair of the Central Bank of Zargadee, seeks your advice about monetary policy. For each part (b)-(d) below, 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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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