1. Given that the required reserve ratio is 5% and there is no existing excess reserve and no cash leakage in Xeno Republic, how much money can be created from an increase in deposit of $50,000?Explain how the level of required reserve can affect the money creation process in the economy.
2. Having recovered strongly from the recession in 2009, the Xeno Republic's economy is expected to grow by more than 12% in 2015.The Central Bank of Xeno Republic is concerned about rising inflation and decided to increase the required reserve ratio for commercial banks from 5% to 10%.Evaluate the effect of this policy change on the interest rate, aggregate demand, real GDP, unemployment and inflation in the economy.