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5. Banks in the country of Olympios have been required for many years to hold a cash reserve ratio of 10%. Over the last two
5. Banks in the country of Olympios have been required for many years to hold a cash reserve ratio of 10%. Over the last two years, the amount of cash held by the general public outside of the banking sector has reduced significantly as debit cards and mobile devices are increasingly used for transactions. a) Discuss the impact that the change in the amount of cash held outside of the banking system will have had on the broad money supply in the economy, assuming that the stock of high-powered money is unchanged. [3 marks] b) Compare the effectiveness of an expansionary monetary policy strategy in Olympios at the current time relative to three years prior, if the government's aim is to stimulate aggregate demand. [4 marks] [Total: 7 marks]
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