Neco Model Questions Vol1 2018 Economics Question 8

Consider the following information about the Nigerian banking system in 2023: - Required reserve ratio (RRR) = 15 % - Currency‑to‑deposits ratio (c) = 0.30 (i.e., public holds ₦0.30 in cash for every ₦1 deposited) - Excess reserves held by banks = ₦200 billion - The Central Bank conducts an open‑market purchase of government securities worth ₦500 billion, paying for them by crediting the reserve accounts of commercial banks. Answer the following: (a) Calculate the money multiplier (k) for the Nigerian economy using the given ratios. (b) Determine the change in the overall money supply (M) resulting from the open‑market purchase, assuming banks do not change their excess‑reserve holdings. (c) If, after the purchase, banks decide to increase their excess reserves by an additional ₦100 billion, recalculate the change in the money supply. (d) Discuss briefly how the change in the money supply could affect the short‑run equilibrium interest rate in the loanable‑funds market.