The central bank buys worth of bonds in the open market from Joe, who deposits the proceeds in his checking account at Bank. The required reserve ratio is . (a) What is the amount by which Bank’s liabilities have changed? Explain. (b) Calculate the change in required reserves for Bank. Show your work. (c) What is the dollar value of the maximum amount of new loans Bank can initially make as a result of Joe’s deposit? Explain. (d) Based on the central bank’s open-market purchase of bonds, calculate the maximum amount by which the money supply can change throughout the banking system. Show your work. (e) How will the change in the money supply in part (d) affect aggregate demand and the price level in
The central bank buys worth of bonds in the open market from Joe, who deposits the proceeds
in his checking account at Bank. The
(a) What is the amount by which Bank’s liabilities have changed? Explain.
(b) Calculate the change in
(c) What is the dollar value of the maximum amount of new loans Bank can initially make as a
result of Joe’s deposit? Explain.
(d) Based on the central bank’s open-market purchase of bonds, calculate the maximum amount by
which the money supply can change throughout the banking system. Show your work.
(e) How will the change in the money supply in part (d) affect aggregate demand and the price level in
the short run? Explain
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