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5.- Suppose the ECB purchases government bonds 10,000 worth from you. a. What is the name of the Bank's action? b. By how much will
5.- Suppose the ECB purchases government bonds 10,000 worth from you. a. What is the name of the Bank's action? b. By how much will the Monetary Base increase? c. Suppose you deposit a part of the 10,000 in First Student Bank. People's preference for cash ratio is 25% (e = 0.25). How much are you going to keep in your pocket and how much are you going to deposit in the bank. d. Assume that the reserve ratio is 20 percent (a = 0.2). Show First Student Bank's T-account if they loan out as much as they can. e. Show this transaction on First Student Bank's T-account. First Student Bank Assets Liabilities = f. What is the value of the money multiplier? g. After infinite rounds of depositing and lending, how much Money Supply could be created from the ECB policy action? And how much Deposits? (To be submitted before May 2)
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