Question 3.

Central banks often perform a number of functions in today's economy.Address the questions about central banks that follow.Explain briefly and write words and sentences.

a.(6 points)Discuss the three key functions typically performed by central banks.For each function, provide an example of how the Federal Reserve performs that function. Explain briefly but fully. Write words and sentences

.b.(6points)Set up a T-account for the consolidated assets and liabilities of the Federal Reserve System, and list the Fed's main assets and liabilities (and net worth) within this T-account.In normal times, which of the Fed's assets is typically the largest share of its total assets?Which of the Fed's liabilities is typically the largest share of its total liabilities (and net worth)?Explain briefly but fully.Write words and sentences.

c.Under fractional reserve banking, both the quantity of money supplied via the banking system and the total amount of credit extended by banks are governed by multiplier processes

.i)(11points)Using the definitions and notation from class and your reading, work out an expression for the money multiplier relating the monetary base to the M1-style measure of the quantity of money.Assume that banks issue only transactions deposits as liabilities and hold loans, securities, and reserves as assets.Briefly show your work, and explain all key steps.Write words and sentences

.ii)(11points)Using the definitions and notation from class and your reading, workout an expression for the total credit multiplier relating the monetary base to the total quantity of bank credit.Assume that banks issue only transactions deposits as liabilities and hold loans, securities, and reserves as assets.Briefly show your work, and explain all key steps.Write words and sentences.