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[10 marks] Suppose that quantitative easing leads to an expansion of the quantity of reserves R. Analyse the effect on the broad money supply D.

[10 marks] Suppose that quantitative easing leads to an expansion of the quantity of reserves R. Analyse the effect on the broad money supply D. Does D rise, and if so, does it rise in proportion to R? Does your answer depend on whether the central bank is already using the 'floor system' from part (b)? [Hint: what are the implications for the 'money multiplier' D/R?]

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