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a) Describe the various key roles of the Reserve Bank of Australia (RBA) as specified on their website. b) i) Assume that the reserve ratio in a...
a) Describe the various key roles of the Reserve Bank of Australia (RBA) as specified on their website.
b) i) Assume that the reserve ratio in a country is 16%. What would be the simple money multiplier?
ii) Suppose that customers deposit $2,000 into their banks. Based on the simple money multiplier calculated in part i), calculate the total change in the money supply available in the banking system.
iii) Calculate the total change in the money supply available in the banking system if the reserve ratio increases to 20%. Explain how money multipliers work.
c) The European Central Bank (ECB) would like to increase the interest rates in the economy. What open market operation (OMO) action should the ECB take? Explain in detail the OMO process and its implications for the cash rate, interest rates, inflation and GDP. Draw the effect of the OMO process using the MD-MS diagram.
