Task 1 – Commercial banks in United Economy have total deposits of AED 300 billion. Their reserves are AED 15 billion, two- thirds of which are with the Central Bank as deposits. There are AED 30 billion notes outside the banks. There are no coins!
a) The monetary base.
b) The banks’ reserve ratio.
c) Currency drain as a % of deposits.
Task 2 - Suppose Mr. Y deposits AED 100,000 into a one-year Certificate of Deposit at 5% interest. The Central Bank sets the reserve ratio for the banks at 10%.
A) Illustrate how the banks create money with the help of given information.
(Show first 5 steps)
B) Calculate the total money creation in the economy with the help of formula.