In 2020, Bank Indonesia (Indonesia's central bank) has injected around Rp 694.87 trillion of additional liquidity into the banking system (through quantitative easing), primarily in the form of lower reserve requirements totaling Rp155 trillion and monetary expansion totaling Rp 524.07 trillion to support the country’s economic recovery which has been hard hit by the coronavirus pandemic.

a. Using relevant models, illustrate the effect of the monetary policy on:
i. Level of money supply, the quantity of loanable funds, and interest rate.
ii. Level of investment and output.
b. What would the monetary policy affect the Indonesian Rupiah (IDR) exchange rate? Explain.
c. What are the possible disadvantages of this monetary policy? Explain.

Answer rating: 100% (QA)

a i The injection of additional liquidity into the banking system through quantitative easing would have several effects on the level of money supply the quantity of loanable funds and the interest ra... View the full answer