Reference no: EM131413739

The central bank balance sheet of the imaginary country Pecunia is shown below:

Assets: Foreign assets $1,000 Domestic assets $1,500

Liabilities: Deposits held by private banks $500 Currency in circulation $2,000

We want to analyze how the sale of $100 worth of its foreign assets affects the central bank's balance sheet. The assumption in the textbook example (pg.467) was that the buyer of the foreign assets paid in the form of domestic currency cash. Suppose instead that the buyer pays with a check drawn on her account at Pecuniacorp, a private domestic bank. Using a balance sheet like the one presented above, show how the transaction affects the central bank's balance sheet and the money supply.