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ECON215: Homework Assignment Prof. Sasidaran Gopalan Total Points: 10 Weightage: 5% of your grade. Using your understanding of how money supply is created in an economy, answer the following: a. (2 points) Let us suppose that the Central Bank of the UAE (CBUAE) buys AED 5 million worth of government bonds from ABCD Bank. Show how this will be reflected in the CBUAE's Balance Sheet and the ABCD Bank's Balance Sheet. b. (1 point) How much does the monetary base in UAE increase by as a result of CBUAE's action in part (a)? Why? c. (2 points) What is the maximum amount of loans that ABCD Bank can create given its balance sheet based on the information in part (a)? If it decides to loan the maximum amount possible, what will its balance sheet look like? Show the T account and explain your answer. d. (2 points) Let us say that the borrower of the loan decides to withdraw the loan from ABCD Bank and deposit it into FBA Bank. Show what happens to the balance sheet of ABCD Bank and FBA Bank. Explain briefly the changes you observe. e. (1 point) Assume now that the required reserve ratio is 10%, How will this affect FBA bank's ability to make further loans? Explain. f. (2 points) Let us say that FBA Bank has decided to loan its excess reserves. Show its final T account