YC Macro Economics Central Bank Discussion

Assignment # 2

• What happens to the overall money supply when a person who sells a government bond to the Central Bank (SAMA) places the proceeds in a local bank?
• What is the burden of the public debt?
• It may be argued that the effects of a higher public debt are the same as the effects of higher taxes.Why?
• What is discretionary fiscal policy? What are automatic stabilizers? Give examples of each.
• How does the crowding out effect tend to offset expansionary fiscal policy?
• Assume a 5% required reserve ratio, zero excess reserves, no currency leakage, and a ready loan demand.SAMA buys a SR1 million government bond from investment institution.
• If the high powered money “H” in the Saudi Arabian economy is SR600 billion and the money multiplier “m” is 1.5, find out the following:
  • Total money supply “M” in the money market in Saudi Arabia.
  • Calculate the Cash-Reserve Ration (CRR).
• Assume that the required reserve ratio is 15 percent and that SAMA sells SR3 million worth of government securities to a costumer who pays with a check drawn on the Riyad Bank.
  • The excess reserve of Riyad Bank changed by how much?
  • By how much has the money supply changed?
• Suppose that the T-account for National Commercial Bank is as follows:
• Complete the table below.
• Suppose that consumption equals SR500 billion and total income equals SR650 billion.
• Consider a closed. Private economy in which C = SR30 + 3/4Y and I = SR25.What will the equilibrium level of real national income (Y) be equal to in this economy? (Hint: In equilibrium real national income must equal total planned expenditures, or Y = C + I.)
• Bank 1 received a deposit of SR1 million. Assuming that the banks retain no excess reserves, answer the following questions:
• If the required reserve ratio is 10%, what will be the maximum change in the money supply in each of the following situations?

• What is the maximum money multiplier?
• By how much will total deposits rise?

Assets (thousands) Liabilities (thousands)

Reserves SR 100Deposit SR 800

LoanSR 700

TotalSR 800SR 800

• If SAMA requires banks to hold 5% of deposits as reserves requirement, how much in excess reserves does the National Commercial Bank now hold?
• If National Commercial Bank decides to reduce its reserves to only the required amount, will the economy’s money supply increase or decrease? Explain.
• What is the money multiplier in this economy?

• Determine the marginal propensity to consume and the marginal propensity to save.
• Determine the average propensity to consume and the average propensity to save for each level of income.

• If the marginal propensity to consume is equal to 0.8, what must savings be equal to?
• What does the MPS equal?
• At the income level of SR650 billion, what does the APC come to?

• The reserve requirement is 25 percent.
• Now the reserve requirement is 5 percent.

• Fill in the blanks in the table below.
• What is the deposit multiplier?

Multiple Deposit Creation

• Fill in the blanks in the similar table.
• What is the deposit multiplier?

Multiple Deposit Creation

• Abdullah deposits in Riyad bank a check drawn on SAMBA bank.
• Abdullah buys a SR5,000 Saudi government bond from Saudi Central Bank by drawing down on his checking account.
• Abdullah sells a SR10,000 Saudi government bond to the Saudi Central Bank and deposit the SR10,000 in NCB bank.
• Abdullah writes a SR10,000 check on his own account and takes SR1,000 in currency and buries it in his backyard.
• You can observe the file below for the whole questions