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Imagine a monetary system with just two commercial banks. Their simplified balance sheets are shown below. BANK A Assets Liabilities Cb = 100 Dp =

Imagine a monetary system with just two commercial banks. Their simplified balance sheets are shown below.

BANK A

Assets Liabilities
Cb = 100 Dp = 2150
Db = 50
Lp = 2000

BANK B

Assets Liabilities
Cb = 500 Dp = 4000
Db = 500
Lp = 3000

Cb are notes and coins held by banks

Db are deposits of banks at the central bank

Lp are loans provided by banks to the private sector

Dp are customer deposits

In addition, the non-bank public holds notes and coin (Cp) of 400.

i) Compare the two banks using information from their balance sheets.

ii) Determine the stock of broad money.

Suppose now that Bank A makes additional loans of 100 dollars to a subset of its customers and that some of these customers use 50 dollars to make payments to other depositors of the same bank and 50 dollars to make payments to clients of Bank B.

iii) Draw up new balance sheets for each bank.

iv) Determine the stock of broad money after the adjustment.

v) Based on your results, discuss in detail the multiplier effect of money supply.

PLEASE SHOW ALL BASIC WORKING

HOPE SOMEONE HELPS ME OUT WITH A SOLUTION TO THIS SEEING THAT A SIMILAR ONE I POSTED WAS NEVER ANSWERED.

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