(a) Consider an economy where there is only one commercial bank, the ABC Bank. It has been keeping aside higher than requisite funds (as per the statutory require- ment) to be able to honor its withdrawals. Following a recession, the central bank has responded by reducing the statutory reserve requirement, but ABC bank has become even more cautious and has started keeping aside more funds to be able to honor its withdrawals. Discuss the impact of this policy change by the central bank on the money supply in this economy.

(b) Consider two countries A and B, at war against each other. Country A has a very large economy, while country B's economy is much smaller. In this peculiar war, both the countries are not using any armaments or big forces of the army to fight this war. They are using 'paper' instead. The strategy of each country is to print the other's currency and then drop large quantities of it by airplane. Do you think this strategy would work for each of these countries in fighting the war? Explain in detail, stating the necessary assumptions if required.