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Ministry of finance account with the cbl

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1. The Central Bank of Liberia issued an official gazette in which, among other things, it revised the reserve requirement ratio from 10 percent to 20 percent, and the discount rate from 3 percent to 5 percent. This policy initiative was a direct response to what the Bank described a bloated money supply, loose credit; with the attending consequences on the prices and the value of the domestic currency. At the time of the CBL's action, systems wide deposits amount to L$1,000 million including $200 Million in the Ministry of Finance account with the CBL. On the other side, the Ministry of Finance has concluded plans to raise $200 Million through the sale of bonds by selling Savings bonds in order to finance a road project in Harper.

a.Determine the amount of expansion/contraction of the money supply (if any) from the actions of both the CBL and the Ministry of Finance.

b. Assess the impact of the CBL initiative and the impact of the MOF action on the banking system in terms of lending, economic activities, employment, economic growth, and policy coordination.

2. Now assume that instead of selling securities as stated in problem (4) above, the Ministry of Finance decides to retire securities from the public. How will your answers be different (if any) from those in question (a) above?

Reference no: EM132999090

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