Question 2 (25 marks / Central Banks and Conduction of Monetary Policy) (a) Compare the similarities and differences in term of the structure and independence of the European System of Central Banks (ESCB) and the Federal Reserve System. (10 marks) (h) What are the main problems with having a central bank that is not independent of the rest of the government? (4 marks) c) The trading desk at the Federal Reserve sold $100,000,000 in T-bills to the public. If the current reserve requirement is 8.0%, how much could the money supply change? (4 marks) (d) Consider a bank policy to maintain 24% of deposits as reserves. The bank currently has $20 million in deposits and holds $800,000 in excess reserves. What is the required reserve on a new deposit of $100,000? (7 marks) Page 3 of 5 Question 2 (25 marks / Central Banks and Conduction of Monetary Policy) (a) Compare the similarities and differences in term of the structure and independence of the European System of Central Banks (ESCB) and the Federal Reserve System. (10 marks) (h) What are the main problems with having a central bank that is not independent of the rest of the government? (4 marks) c) The trading desk at the Federal Reserve sold $100,000,000 in T-bills to the public. If the current reserve requirement is 8.0%, how much could the money supply change? (4 marks) (d) Consider a bank policy to maintain 24% of deposits as reserves. The bank currently has $20 million in deposits and holds $800,000 in excess reserves. What is the required reserve on a new deposit of $100,000? (7 marks) Page 3 of 5