Assume the required reserve ratio in the country of Rayogi is 5 percent, and the banking system in Rayogi has limited reserves. (a) If Rayogi's central bank sells $10 million of securities to commercial banks and the commercial banks pay for the securities out of their reserves, calculate the maximum possible change in the money supply. Show your work. (b) Draw a correctly labeled graph of the money market, and show the effect of the change in the money supply identified in part (a) on the equilibrium nominal interest rate in Rayogi. (c) Assume no change in inflationary expectations. Based on the change in the nominal interest rate identified in part (b), what will happen to the real interest rate in Rayogi? (d) Based on your answer to part (c), what will happen to the economic growth rate in Rayogi? Explain.

Assume the required reserve ratio in the country of Rayogi is 5 percent, and the banking system in Rayogi has limited reserves. (a) If Rayogi's central bank sells $10 million of securities to commercial banks and the commercial banks pay for the securities out of their reserves, calculate the maximum possible change in the money supply. Show your work. (b) Draw a correctly labeled graph of the money market, and show the effect of the change in the money supply identified in part (a) on the equilibrium nominal interest rate in Rayogi. (c) Assume no change in inflationary expectations. Based on the change in the nominal interest rate identified in part (b), what will happen to the real interest rate in Rayogi? (d) Based on your answer to part (c), what will happen to the economic growth rate in Rayogi? Explain.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter27: Money And Banking

Section: Chapter Questions

Problem 4SCQ: For the following list of items, indicate If they are in M1, M2, or neither: Your 5,000 line of...

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