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Assuming that the banking sector currently has a liquidity ratio of 10 per cent. Assume also in each of the following that banks want to

Assuming that the banking sector currently has a liquidity ratio of 10 per cent. Assume also in each of the following that banks want to maintain this liquidity ratio. What will be the effect of each of the following on money supply?

(a) An open market purchase by the central bank of 1bn of bonds.

(b) An open market sale by the central bank of 5bn of bonds.

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