Solved: 2.) Money Banks in Burul have a desired reserve ratio of 20% of deposi

Question

2.) Money Banks in Burul have a desired reserve ratio of 20% of deposits and no excess reserves. Households want to keep 5% of their money as currency. Now suppose that the Central Bank Increases the monetary base by $3 billion. a.) How much do the banks lend in the first round of the money creation process? (0.5 Points) b.) How much of the initial amount lend flows back to the banking system as new deposits? (1.5 Points) c.) How much do the banks lend in the second round of the money creation process? (1.5 Points) Page 3 of 4 d.) Show with the help of a graph of the money market what happens to the interest rate as a result of the Increase in the monetary base by the Central Bank. (No actual numbers needed) (2 Points)/nd.) Show with the help of a graph of the money market what happens to the interest rate as a result of the Increase in the monetary base by the Central Bank. (No actual numbers needed) (2 Points) e) in the long run, what is going to happen to the price level when the monetary base Increases and the economy is at full capacity? (0.5 Points)