(a)Most people in the country of Hypothetica tend to keep 5% of their cash holdings in their wallets. The central bank has instructed the commercial banks to also hold 3.5% of all bank deposits as reserves.

(i)Calculate the simple money multiplier (2 marks)

(ii)Suppose that in 2018 customers deposit $2,500 into their bank accounts. Based on the simple money multiplier calculated in part (i), calculate the total amount which the money supply in the banking system will eventually increase to. (2 marks)

(b)What do you expect will happen to the total amount of Australian dollar securities (i.e. government securities) held by the Reserve Bank of Australia in the next few years? Justify your answer. (6 marks)