The central bank balance sheet of the imaginary country Pecunia is shown below: Assets Foreign assets $1,000 Domestic assets $1,500 Liabilities Deposits held by private banks Currency in circulation $500 $2,000 We want to analyze how the sale of $100 worth of its foreign assets affects the central bank's balance sheet. The assumption in the textbook example was that the buyer of the foreign assets paid in the form of domestic currency cash. Suppose instead that the buyer pays with a check drawn on her account at Pecuniacorp, a private domestic bank. Using a balance sheet like the one presented above, show how the transaction affects the central bank's balance sheet and the money supply.
The central bank balance sheet of the imaginary country Pecunia is shown below: Assets Foreign assets $1,000 Domestic assets $1,500 Liabilities Deposits held by private banks Currency in circulation $500 $2,000 We want to analyze how the sale of $100 worth of its foreign assets affects the central bank's balance sheet. The assumption in the textbook example was that the buyer of the foreign assets paid in the form of domestic currency cash. Suppose instead that the buyer pays with a check drawn on her account at Pecuniacorp, a private domestic bank. Using a balance sheet like the one presented above, show how the transaction affects the central bank's balance sheet and the money supply.
Chapter14: Banking And The Money Supply
Section: Chapter Questions
Problem 3.4P
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Economics
Transcribed Image Text:The central bank balance sheet of the imaginary country Pecunia is shown below.
Assets
Foreign assets
$1,000
Domestic assets $1,500
Liabilities
Deposits held by private banks
Currency in circulation
$500
$2,000
We want to analyze how the sale of $100 worth of its foreign assets affects the central bank's
balance sheet. The assumption in the textbook example was that the buyer of the foreign assets paid
in the form of domestic currency cash. Suppose instead that the buyer pays with a check drawn on
her account at Pecuniacorp, a private domestic bank. Using a balance sheet like the one presented
above, show how the transaction affects the central bank's balance sheet and the money supply.
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