Answer to Question #226227 in Macroeconomics for Cliff

Question

In the economy of Brightland, the commercial banks have deposits of $600 billion. Their reserves 

are $60 billion. All reserves are in deposits with the Central Bank and the commercial banks hold 

no excess reserves. There is $120 billion in Central Bank notes outside the banks, and there are no 

coins. (5 marks each)

a) What is the economy's monetary base?

b) What is the quantity of money in the economy?

c) Calculate the money multiplier.

d) Suppose the Central Bank of Brightland 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

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