Suppose that the required reserve ratio is 15%, currency in circulation is $1000 billion, the currency deposit ratio is 0.5, and total reserves are $600 billion.

Qn:

Calculate the excess reserve ratio, the money supply, and the money multiplier.

Qn 2:

Suppose the Central Bank conducts an unusually large open market sale of bonds to commercial banks of $ 200 billion to prick an ongoing housing bubble. Assuming the ratios you calculated in part (a) remain the same, predict the change of the money supply, and the resulting money supply in the market after the sale.

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