In the country of Extensia, the central bank engages in open market operations, using Extensia government bonds (T-Bonds). The most recent data show the following values for key monetary variables (B stands for billions of dollars):

Cash Held by Public $2B

Checking Deposits $ 15B

R 7%

E 5%

Now assume that the Extensia Central Bank sells $2B worth of T-Bonds.

Assuming no change in E (the proportion of deposits that banks want to hold as excess reserves), or R (the proportion of deposits that banks are required to hold), and no change in cash held by the public, what will be the new money supply in Extensia after the central bank's action? Show your calculations, and round your answer to two decimal places.

Answer rating: 100% (QA)

Calculating the New Money Supply in Extensia ... View the full answer