“The central bank can perfectly control the amount of the monetary base, but has less control over the composition of the monetary base.” Is this statement true, false, or uncertain? Explain.
1b. Suppose that the required reserve ratio is 9%, currency in circulation is $620 billion, the amount of checkable deposits is $950 billion, and excess reserves are $15 billion. i. Calculate the money supply, the currency deposit ratio, the excess reserve ratio, and the money multiplier. 

ii. Suppose the central bank conducts an unusually large open market purchase of bonds held by banks of $1,300 billion due to a sharp contraction in the economy. Assuming the ratios you calculated in part (i) remain the same, predict the effect on the money supply.
iii. Suppose the central bank conducts the same open market purchase as in part (b), except that banks choose to hold all of these proceeds as excess reserves rather than loan them out, due to fear of a financial crisis. Assuming that currency and deposits remain the same, what happens to the amount of excess reserves, the excess reserve ratio, the money supply, and the money multiplier?

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The central bank is the only monetary authority in a country They also have the responsibility to regulate the banking system in the country The centr... View the full answer