Question

Suppose the bank of namibia undertakes an open market purchase of securities of so that the monetary base increases by $5 billion. By how much will the quantity of money change

Answer 1

Solution:

Current Monetary base = $120+69=189 \;billion$

Quantity of money in the economy (Money Supplier) =$120+60+69 = 249\;billion$

Money Multiplier = $\frac{Change\;in \;Money\;Supply}{Change\;in\;Monetary \;Base}$

$\frac{249}{189} =1.38$

This means that for every $100 change in monetary base would change the quantity of money by about $138

Suppose the Monetary base is increased by $5 billion, then:

New Monetary base value will be = $\$189 +\$5 = \$194 \;billion$

Money change = $\frac{249}{194}=1.28$

This means that for every $100 change in monetary base would change the quantity of money by about $128

Therefore the quantity of money will change by $128