Consider a small economy. Suppose that currency in circulation is $200 million, the amount of chequable deposits is $1000 million, and excess reserve holding is $60 million and desired reserve holding ratio is 10%.

a) How much money does the economy have?

b) How much is its monetary base?

c) How much is its money multiplier?

1.5P

1.5P

2P

d) If the central bank (CB) conducts an open market purchase of $50 million with an LVTS participant and hence its monetary base (MB) changes accordingly, how much money created in its 1st step, 2nd step and 3rd step of the money creation process for the MB change? And, how much total money created in the end for the MB change?