On March 4, the International Monetary Fund (IMF) and the World Bank held a joint news conference on the impact of the COVID-19 on the global economy and the responses from global governments and central banks.

The policy tracker page in the IMF website summarizes the key discretionary fiscal and monetary policies that governments are taking to tackle the economic impacts of the COVID-19 pandemic. Consider the following examples.

1. (a)The People's Bank of China (PBOC), China's central bank, has lowered its required reserve ratiofor commercial banks by 50-100 basis points (one basis point = 0.01%). Discuss how this policy would affect the money market. Using the AD-AS diagram to explain the impact of impact of the policy.(10%)