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ECONOMICS Question one Suppose that the economy initially has R700 in reserves. (note $1= R18.00) a....

ECONOMICS

Question one

Suppose that the economy initially has R700 in reserves. (note $1= R18.00)

a. If the required reserve ratio is 20%, what is the total money supply, assuming there is no cash being held? What is the money multiplier? What is the amount of loans outstanding in the banking system?

b. How much does the money supply increase when the Central Bank adds $5.55 in new reserves?

c. If the Central Bank wants to make the money multiplier 10, what do they need to set the required reserve ratio to? If they make this change what happens to the money supply?

d. If a bank in this economy has $200 of reserves, $250 of loans and $450 of deposits, how much excess reserves are they holding (use the required reserve ratio of 10%)? How much could the bank make in additional loans?

Question two

(a) brians’s mortgage was approved by FNB. Brian however, decided to purchase a model of a car called Bugatti using the mortgage. On the other hand, Brian had initial plans of investing money in some risky online business. He therefore, approached a money lending institution and applied for a loan in the name of exporting goats to Canada and his loan was also approved for such a lucrative investment by the lending institution. As a student of Principles of Economics, discuss the above scenario and make relevant comparisons and distinctions.

(b) Use Qd = 300 – 50P, and Qs = -100 + 150P to calculate, (i) equilibrium price (P*) and quantity (Q*), (ii) point elasticity of demand and supply at P* and Q*, (ii) Consumer and Producer Surplus

Solutions

Expert Solution

Please post the remaining questions separately.

A like/dislike is really appreciated.

Comment for any doubts.

Rahul Sunny answered 2 years ago
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