(i) Briefly explain, with the aid of a diagram, how a central bank conducts a contractionary open market operation in the money market, making clear the implications of the operation for the price of Treasury bills and the short-term rate of interest.

(ii) Write down the equation for the money multiplier that shows the link between the narrow money supply and the broad money supply. Your equation must include the following variables and notation; c for the proportion of deposits held by the public as cash and r for the proportion of deposits held by the banks as cash.

(ii) If the narrow money supply rises by 9 per cent and the money multiplier is 3 then by what percentage does the broad money supply rise?