Question: The central bank in a country released the following statistics. Total deposits in banks amounted to $ 500 million, notes and coins outside banks reached $ 100 million and reserves of banks held at the central bank amounted to $50 million. Use these figures to calculate the following:

1. Calculate the quantity of money (the money supply)

2. Calculate the monetary base

3. Calculate currency drain ratio

4. Calculate the reserve ratio

5. Calculate the money multiplier

Question 4: Define rational expectations and explain the two rational expectation theories of the business cycle.(7 marks)

Definition of rational expectation: (1 mark)

Rational expectations theories.

1.(3 marks)

2.(3 marks)

Question 5. Explain the three accounts of the balance of payment.(6 Marks)