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ps05 - University of Toronto Economics Department...

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University of Toronto Macroeconomics, Theory and policy Masoud Anjomshoa Economics Department Assignment #5 Olivier Blanchard, David Johnson, Macroeconomics. Chapter 5, Pages 98-100, Questions 1, 2, 3, 4, 5, 6, 7. ============================================================================== 1- Suppose there is no money in the economy, and people only have bonds. One day the Central Bank buys $2000 bonds, and pays cash to the sellers. Suppose people don’t keep cash at all, and commercial banks don’t keep excess reserves. The Central Bank has set the required reserve ratio at 25%. a)- What would be the balance sheets of the commercial banks, and Central Bank. b)- What would be the size of the high-powered money (money base), and its components. c)- What would be the total money supply, and its components. d)- What would be the size of money multiplier? ----------------------------------------------------------------------------------------------------------------------------------- 2- Suppose there is no money in the economy, and people only have bonds. One day the Central Bank buys $2000 bonds, and pays cash to the sellers. Suppose cash/deposit ratio is: cr = 1/9, and commercial banks don’t keep excess reserves. The Central Bank has set the required reserve ratio at 25%. a)- What would be the balance sheets of the commercial banks, and Central Bank. b)- What would be the size of the high-powered money (money base), and its components. c)- What would be the total money supply, and its components. d)- What would be the size of money multiplier?
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