fixed-ratio, the discount is fixed ( a free coffee) and the number of cofees is fixed 10
Answer: See explanation
Explanation:
a. . Assume also that borrowers eventually return all of these funds to their banks in the form of transaction deposits. What is the full effect of this purchase on bank deposits and the money supply?
Based on the above scenario, there'll be an increase in bank deposits and money supply by $16.4 billion.
= (1/5%) × $820 million
= (1/0.05) × $820 million
= 20 × $820 million
= 16,400,000,000
= 16.4 billion
b.What is the full effect of this purchase on bank deposits and the money supply if borrowersreturn only 95 percent of these funds to their banks in the form of transaction deposits?
This will lead to an increase in the bank deposits and money supply by $8.2 billion
= [1/(0.05+(1-0.95)] × $820 million
= [1/0.05+0.05] × $820 million
= (1/0.1) × $820 million
= 10 × $820 million
= $8.2 billion
I wholeheartedly agree and think it’s practically self-evident.
Here’s an excellent example from history.
For 28 years, the Berlin Wall separated East Berlin from West Berlin and was the most heavily militarized border crossing in the Western hemisphere. In 1989, during a press conference with western media, Gunther Schabowski was handed a note explaining a change in policy governing border crossing. Several discussions took place about making a show of opening the border between East and West Germany, but nobody informed Schabowski.
At the end of the press conference, he appears to have remembered the note belatedly, and read it verbatim—which was not what was intended. When asked about when the border would open, he assumed it was immediate.
The reality of course was that East Germany had no intention of opening the border, and certainly not immediately.
Within hours, the border crossing was practically buried under thousands of East Germans eager to be reunited with their families and other loved ones after 28 years on the press conference, which had been broadcast live.
The East Germans believed what they were told: Schabowski said immediately, and they intended to go immediately.
Border guards kept calling for instructions, until finally, they relented.
Perception became reality, and the border between East and West Berlin opened, spelling the de facto end of the separation of Germany.
273 viewsView 2 Upvoters · Answer requested by Never Wong
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