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!
Calculate-
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.