Consider an economy where the monetary base is k24 000, while the total deposits are k56 000. Bank of Zambia has put a Statutory reserve ratio that allows this banking system to loan out k50 400 from these deposits. The public on the other hand has decided to deposit only 20% of their money, while keeping the rest in currency form. Further, excess reserves in this banking system is 30%. Use the money multiplier model to determine the money supply in circulation. ii) what would happen to the money supply in circulation if the reserve ratio was put at 5% and excess reserves at 35%. iii)Explain the mechanism through which money supply changed from before and after the changes in reserve ratio and excess reserves.
Consider an economy where the monetary base is k24 000, while the total deposits are k56 000. Bank of Zambia has put a Statutory reserve ratio that allows this banking system to loan out k50 400 from these deposits. The public on the other hand has decided to deposit only 20% of their money, while keeping the rest in currency form. Further, excess reserves in this banking system is 30%. Use the money multiplier model to determine the money supply in circulation. ii) what would happen to the money supply in circulation if the reserve ratio was put at 5% and excess reserves at 35%. iii)Explain the mechanism through which money supply changed from before and after the changes in reserve ratio and excess reserves.
Chapter25: Money Creation
Section: Chapter Questions
Problem 8SQP
Related questions
Question
Consider an economy where the monetary base is k24 000, while the total deposits are k56 000. Bank of Zambia has put a Statutory reserve ratio that allows this banking system to loan out k50 400 from these deposits. The public on the other hand has decided to deposit only 20% of their money, while keeping the rest in currency form. Further,
Use the money multiplier model to determine the money supply in circulation.
ii) what would happen to the money supply in circulation if the reserve ratio was put at 5% and excess reserves at 35%.
iii)Explain the mechanism through which money supply changed from before and after the changes in reserve ratio and excess reserves.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning