Explain how much government securities should be purchased

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Reference no: EM1346331

Arboc's central bank (Arbobank) holds 2,000 opeks in government securities. The commercial banks have deposited 200 opeks with Arbobank and hold 100 in vault cash. 700 opeks are held as currency by the public. The required reserve ratio is 20%. Banks are loaned up.

Arbobank would like to increase the money supply to 3,100 opeks either by an open market operation or a change in the required reserve ratio.

(a) What should be the new ratio if the required reserve ratio is changed?

(b) Explain how much government securities should be purchased/sold if an open market operation is undertaken?

Reference no: EM1346331

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