What is the effect of the treasury sale on the money supply

Reference no: EM131309088

In the Republic of Ragu, the currency is the rag. During 2009, the Treasury of Ragu sold bonds to finance the Ragu budget deficit. In all, the Treasury sold 50,000 10-year bonds with a face value of 100 rags each. The total deficit was 5 million rags. Further, assume that the Ragu Central Bank reserve requirement was 20 percent and that in the same year, the bank bought 500,000 rags' worth of outstanding bonds on the open market. Finally, assume that all of the Ragu debt is held by either the private sector (the public) or the central bank.

a. What is the combined effect of the Treasury sale and the central bank purchase on the total Ragu debt outstanding? on the debt held by the private sector?

b. What is the effect of the Treasury sale on the money supply in Ragu?

c. Assuming no leakage of reserves out of the banking system, what is the effect of the central bank purchase of bonds on the money supply?

Reference no: EM131309088

Questions Cloud

Determining the knowledge of functionalism : How could a knowledge of functionalism help you to see the problems before they happen? Where would conflict arise? Who might work at undermining your event? What icons would make the event memorable?

Presents an exhaustive list of ice cream flavors : Write a question that presents an exhaustive list of ice cream flavors. You also want to know how much people are willing to pay for a single scoop of ice cream and a double scoop of ice cream.

What is the balanced-budget multiplier : Evaluate the following statement: For an economy to be in equilibrium, planned investment spending plus government purchases must equal saving plus net taxes.

How did the roman way of waging war contrast with the greek : How did the Roman way of waging war contrast with the Greek way? What was accomplished by strategic bombing during World War II? What costs were borne by the nations that employed it?

What is the effect of the treasury sale on the money supply : What is the combined effect of the Treasury sale and the central bank purchase on the total Ragu debt outstanding? on the debt held by the private sector?

Ideas and suggestions for jim and ester : Which loan should they choose and why? What considerations must they make in deciding to buy versus rent? Use the facts found in the text to back your ideas and suggestions for Jim and Ester?

Develop a questionnaire and a cover letter : Working in a group of four or five, develop a two-page questionnaire and a cover letter that you could mail to a sample of these students.

Define saving and investment : What is likely to happen? What would happen if the government were running a deficit and saving were equal to investment?

What are plcs and sensors used in scada systems : How would you describe general SCADA systems and architecture? What is an example of a SCADA system (e.g. a water treatment SCADA system)?. Draw a diagram. What are PLCs and Sensors used in SCADA systems?

User Account

All Pages