What do you predict will be the effect on the money supply

Reference no: EM13183419

Suppose that currency in cirulation is $600 billion, the amount of checkable deposits is $900 billion, and excess reserves are $15 billion.

a. Calculate the money supply, the currency deposit ratio, the excess reserve ratio, and the money multiplier.

b. Suppose the central bank conducts an unusually large open market purchase of bonds held by banks of 1400 billion due to a sharp contraction in the economy. Assuming the ratios you calculated in the part a are the same, what do you predict will be the effect on the money supply.

Reference no: EM13183419

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