How this initial deposit would increase the money supply

Reference no: EM133219415

Question - Suppose you deposit some money into bank A. The required reserve ratio is 5%.

Draw a diagram to illustrate how this initial deposit would increase the money supply for the entire economy. The diagram should illustrate at least 3 rounds of deposits and 2 rounds of loans. (You should not draw a table or a graph.)

The Federal Reserve wants to decrease money supply by conducting an open market operation. Draw a diagram to illustrate the open market operation. Your diagram should also show the decrease of interbank loans.

The prices of production materials decrease temporarily. Draw an AD-AS graph to show the effects in short run and in long run.

Due to a substantial increase in consumer confidence, the economy is now overheating. The government conducts a contractionary fiscal policy. Draw an AD-AS graph to show how the policy brings the economy back to full-employment output.

Reference no: EM133219415

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