Elucidate how would these change incentive structure facing

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Q. Part I

Consider a world in which re is no currency and deposit theory institutions issue only checkable deposits and desire to hold no excess reserves. Required reserve ratio is 20 percent. Central bank sells $1 billion in government securities. Illustrate what happens to money supply? Give reasons to support your answer.

Part II

Some economists argue in favour of abolishing government-sponsored deposit insurance.

Do you agree or disagree with this argument? Write a well-reasoned argument defending your stance.

If deposit insurance were abolished, elucidate how would these change incentive structure facing deposit theory institutions?

Reference no: EM1367223

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