(6) C=C₂Y³²-(+i^*) + c(Fut/P) where 00. The balance sheet of commercial banks is (7) L=D+Lº Where L = P1 denotes loans to firms, and Lº borrowing from the central bank The interest rate on domestic deposits is (8) P=F Where I is the cost of borrowing from the central bank, or the refinance rate. The interest rate on loans is (9) F=F+e Where is a premium, defined as (10)ee (P Ko-Lo) Where Le is beginning-of-period loans and so The equilibrium condition of the market for domestic goods is (11)Y-X(z)=(1-delta)C+1+G, Where G is government spending, X exports, z = E/ (P) the real exchange rate (defined such that an increase is a depreciation), X = X/>0 and 0

The central bank buys $10,000 worth of bonds in the open market from Elaine, who deposits the proceeds in her checking account at MSM Bank. The required reserve ratio is 5%. (a) What is the amount by which MSM Bank’s liabilities have changed? Explain. (b) Calculate the change in required reserves for MSM Bank. Show your work. (c) What is the dollar value of the maximum amount of new loans MSM Bank can initially make as a result of Elaine’s deposit? Explain. (d) Based on the central bank’s open-market purchase of bonds, calculate the maximum amount by which the money supply can change throughout the banking system. Show your work. (e) How will the change in the money supply in part (d) affect aggregate demand and the price level in the short run? Explain.

Question 20 Which of the following is a credit item in the Australian capital account? Australia donates to nations affected by the Corona virus An Australian emigrates to Great Britain with his life savings of $10000 The Reserve Bank of Australia increases the holdings of foreign currency reserves None of the above

Bank credit creation is seen by Werner as a reason for the Japanese economic boom in the 80’s and subsequent collapse in the 90’s, and generally boom bust cycles occur, because, (a) Banks were merely intermediaries, taking deposits and giving loans, causing the rise and fall. (b) “Good” debt from asset lending allowed banks to lend to the real sector increasing nominal GDP, when asset prices fell, the “bad” debt caused banks to withdraw credit to the real sector causing a recession. (c) Banks lent heavily to assets, causing asset prices to rise and then withdrew credit from assets causing a collapse (d) Both (b) and (c) (e) All of the above