Answer all the questions
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Question 1: Monetary Policy (Illustrate your answers where possible)
I.If the central bank has an interest rate target, why would an increase in the demand for bank reserves lead to a rise in the money supply?
II.The benefits of central bank lending to banks (rediscount operations) to prevent bank panics are obvious. What are the costs?
III. Compare the use of open-market-operations, central bank lending facilities (rediscounting), and changes in reserve requirements to control the money supply on the following criteria: flexibility, reversibility, effectiveness, and speed of implementation.
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