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Assume that the consolidated balance sheet for the commercial banking system can be simpli

Assume that the consolidated balance sheet for the commercial banking system can be simpli

Assume that the consolidated balance sheet for the commercial banking system can be simplified as follows: D+NW=R+L where D=deposits, NW= net worth, R=reserves and L=loans. Assume that the bans maintain a fixed reserves ratio (R/D) of 10% and a capital adequacy ratio (NW/L) of 10%. In addition, assume that the cash holdings of the non-bank public remain close to 5% remain close to 5% of deposits and that reserves total $20bn.

a) how large is the monetary base ($bn)?

b)how large is the (broad) money supply?

c) what is the value of the money multiplier?

d) how is the money multiplier related to the reserves ratio?

Abhinav 02-Dec-2019

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