In the country of Zamboa, the central bank engages in open market operations, using Zamboa government(T-Bonds).The most recent data show the following values for key monetary variables(B stands for millions of dollars):
Cash held by the public $1B
Checking deposits $9B
R 10%
E 10%
a. Calculate the money multiplier.
The Zamboa Central Bank sells $1B worth of T-Bonds.
b. Will the money supply in Zamboa increase or decrease? Explain.
c.Assuming no charge in E(the proportion of deposits that banks want to hold as excess reserves), and no charge in cash held by the public, what will be the new money supply in Zamboa ultimately be,following the central bank's action?