Problem Set 15-16 (ECO100) - Prof. Gustavo Indart...

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Prof. Gustavo Indart Department of Economics University of Toronto ECO100Y INTRODUCTION TO ECONOMICS Problem Set 15-16 1. You are given the following information about a hypothetical economy. The banks have deposits of $300 million from the public. Their reserves are $15 million. Two- thirds of which are in deposits with the central bank. The total currency in the economy $30 million. (a) What is the amount of currency in circulation? (b) What is the money supply? (c) What is the money multiplier? (d) Set out the balance sheet of the chartered banks. Supply any missing numbers using your knowledge of the fact that total assets equal total liabilities. 2. Suppose that the central bank in the economy of Problem 1 undertakes an open market purchase of government bonds of $1 million. What happens to the money supply? Explain why the money supply changes by more than the value of the purchase of government bonds from the public. 3. Suppose the Canadian banking system is characterized as follows: 1) there is only
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Problem Set 15-16 (ECO100) - Prof. Gustavo Indart...

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