(Answered) 1 banks in new transylvania have a target reserve ratio v

Economics

1. Banks in New Transylvania have a target reserve ratio (v) of 5 percent of deposits, no excess reserves and no currency drain. Now suppose that the central bank increases the monetary base by $1,000 billion.

a. Show the first three rounds and the total of the money creation process.

b. What would be the change in money supply (M1)?

2. Banks in New Transylvania have a target reserve ratio (v) of 5 percent of deposits and no excess reserves. The currency drain ratio (c) is 10 percent of deposits. Now suppose that the central bank increases the monetary base by $1,000 billion.

c. Show the first three rounds and the total of the money creation process.

d. What would be the change in money supply (M1)?

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