Suppose a country has $2,000 million in money supply and $1,200 million in reserves.

a. Illustrate the central bank balance sheet diagram. Calculate the backing ratio.

b. Because of a recent banking crisis, the central bank extends $800 billion in credit to deal with liquidity problems in the banking system. Illustrate this situation in a new central bank balance sheet diagram. Is the country still able to maintain a fixed exchange rate? Explain how you know this.

c. Suppose that rather than the previous scenario described, the central bank extends $800 billion in credit to prevent bank insolvency. Illustrate this situation on your graph. Is Patria able to maintain a fixed exchange rate? Explain how you know this.

d. In practice, widespread bank insolvency indicates longer-term problems in the banking sector. Suppose the central bank repeats the operation conducted in (b) for another year. Will the central bank be able to defend the exchange rate peg in this case? Explain why or why not.