Reference no: EM132632041

Please guide me with short answers to the following

1) Describe the process of money multiplication. What is the role of the central bank and commercial banks in the process?

2) Australian money supply, specifically the M3 (broad) monetary aggregate, grew from $2,128 billion in July 2019 to $2,324 in June 2020 (see e.g. https://tradingeconomics.com/australia/money-supply-m3). What percentage increase was that? Why does money supply tend to increase over time?

3) What do you think happens to the money multiplier in a boom, and why? What happens to it in an economic downturn, and why?

4) Through what instrument does the central bank carry out monetary policy? How do the bank's actions transmit through the economy? (hint: think, for example, of an increase in the cash rate target - which parts of GDP are affected and why?)

5) Indicate whether the following statement is TRUE or FALSE and explain your answer: When confidence in the financial markets and economy increases, as it did during the 2013-2019 period, banks tend to decrease their reserve ratios and as a consequence, the money multiplier decreases too.

6) MULTIPLE CHOICE (identify the one best answer below and provide a justification for each of the five options): Suppose $40 coming from a foreign country is deposited in a domestic bank. Assuming that the reserve ratio of banks is 5%, and that there are no leakages from the multiplication process (other than the reserves), the money supply in the economy increases by:

a. An amount X that is more than $1,000.

b. An amount X that is between $600 and $1000.

c. An amount X that is between $300 and $600.

d. An amount X that is less than $300.

e. Money supply actually decreases, not increases