macroeconomics

Question 3 (25 marks total) Currently in the country of Mokland, people hold $12 billion currency, and have bank deposits in the total of $600 billion. All the commercial banks in the country hold the same reserve ratio, and their total reserves are $75 million. a) b) c) d) ) How much is the money supply currently Mokland currently? (3 marks) Suppose that one year later the money supply in Mokland increases by $40 billion, and the only reason for the change is that people there hold less currency; the banks keep the same reserve ratio as before. Find how much currency is still in circulation at that time (i.e. one year later). Show calculations. (5 marks) Suppose that two years later the people in Mokland completely stopped using currency; and the banks still keep the same reserve ratio as before. Find the money supply at that time (i.e. two years later) in Mokland. Show calculations. (4 marks) Continuing from Part a), suppose the central bank requires minimum reserve ratio of 10%, how much reserve in the banking system is required reserve, and how much is excess reserves. Show calculations. (2 marks) Continuing from Part d), but suppose that the banks all decide not to hold any excess reserves any more. There will be no open market operation by the central bank and people still hold the same amount of currency as before. How much will be the money supply in Mokland? Show calculations. (4 marks) Show the combined T-account of all the banks in Mokland as described in Part e), further information needed is as follows: besides reserves and loans, the only other asset the banks have is $120 billion government bonds; the banks have total capital of $40 billion; and their leverage ratio 1s 22 times. (7 marks)