Assume that the required reserve ratio is 0.12 for deposits & there are no excess reserves.
Assume that the total demand for currency is equal to 0.3 times deposits.
a) If total reserves are Rs. 40 billion, what is the level of money supply?
b) By how much does the money supply change if central bank enhances the required reserve ratio to 0.20? Suppose that total reserves are unchanged at Rs. 40 billion.