QUESTION 1:

Assume that public holds no cash (c=0), and the commercial banks always
hold the required percent of deposits as reserves (re=0). The required
percent of deposits is 4%. The total amount of paper bills issued by
Central bank is 12 million USD.
1. What is the money multiplier? What is the money supply? (25; 300 mil)
2. Assume that the Central bank wants to reduce money supply by 60
million USD. Given the above information, how can the Central bank
attain this target by using the Open Market Operation? (sell 2,4 mil USD
of gov bond)
MS = - 60; m=25 → MB = MS / m = - 60/25 =
- 2.4 million → central bank must sell gov’t bonds with 2.4 million $ value
3. Assume that the Central bank wants to reduce money supply by 60
million USD. Given the above information, how can the Central bank
attain this target by changing required reserve ratio? (5%)
MS’ = 300-60=240. m' = MS’/MB = 20 → 1/m’ = 20 → rr=0.05

QUESTION 2:
Assume that the ratio of cash to demand deposit in the public is 0.15, and
the commercial banks hold the required percent of deposits as reserves.
The required percent of deposits is 10%. The total amount of paper bills
issued by Central bank is 5 billion USD.
1. What is the money multiplier? (m=4.6). What is the money supply?
(MS = 23)
2. Assume that the Central bank wants to reduce money supply by 2.3
billion dollars to curb inflation rate. Given the above information, how
can the Central bank attain this target by using the Open Market
Operation? (
QUESTION 3:
Suppose cash-deposit ratio is 0.23; required reserve is 6%; excessive rate
is 1% and money supply is VND 820 billion. What is the high-powered
money?

QUESTION 4:
If both lenders and borrowers believe that the inflation rate in 2022 is
10%, and they want real interest rate to be 3%. So, what is the nominal
interest rate? If actual nominal interest rate in 2022 turns out to be 12%,
so who will benefit, and why?

QUESTION 5:
Assume that our economy contains 1,000 bills of 200.000 VND. The
reserve requirement is 20%, and commercial banks do not hold excess
reserves and there is no cash held by the public.

(i) What is current money supply?,

(ii) If Central Bank wants to raise money supply by 50 million
VND, then how does it use Open Market Operation?

ells gov’t bond at 0.5 billion $)

1. Let’s use the AS-AD model to analyze the impact of each of these events on the
domestic output, overall price level, and unemployment in short-run. Draw the AS-
AD diagram to illustrate your answer.
a) The domestic interest rate declines significantly due to loose monetary policy
b) The government raises the tariff on imported oil
c) The global economy is stepping into a recession period.

2. Let’s use the AS-AD model to analyze the impact of each of these events on the
domestic output, overall price level, and unemployment in short-run. Draw the AS-
AD diagram to illustrate your answer.
a) The world economy is starting to grow after the COVID-19 pandemic.
b) The central bank raises the reserve requirement ratio.
c) The central bank reduces the discount rate.
d) The price of major materials reduces sharply and this economy must import
these materials.