Question
1. How independent is theCentral Bank? What factors contribute to and what factors work against independence? Discuss arguments for and against the independence of theCentral
1. How independent is theCentral Bank? What factors contribute to and what factors work against independence? Discuss arguments for and against the independence of theCentral Bank.
2.Using data (between 2010 and 2021) from the Bank of Ghana website, determine the monetary aggregates (M1 and M2 ) for Ghana and illustrate with the aid of a graph.
3. Suppose that currency in circulation is GHS 800 billion, the amount of checkable deposits is GHS 900 billion, and excess reserves are GHS 17 billion.
Calculate the currency deposit ratio, the excess reserve ratio, and the money multiplier.
Calculate M1 money supply and the monetary base.
Suppose the central bank conducts an unusually large open market purchase of bonds held by banks of GHS 1,600 billion due to a sharp contraction in the economy. Assuming the ratios you calculated in part (a) remain the same, predict the effect on the money supply.
Suppose the central bank conducts the same open market purchase as in part (c), except that banks choose to hold all of these proceeds as excess reserves rather than loan them out, due to fear of a financial crisis. Assuming that currency and deposits remain the same, what happens to the amount of excess reserves, the excess reserve ratio, the money supply, and the money multiplier.
4. Using the equation of exchange, explain the impact on inflation of a central bank policy change that causes to a 10% growth in money supply but with a corresponding 2% growth in output. Use simple notations to illustration your answer. How will your answer change if the economic grew by 8% .
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