Question 2 Assume that no banks hold excess reserves, and the public holds no cu

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Question 2 Assume that no banks hold excess reserves, and the public holds no currency. If a bank sells a $100 security to the Fed, explain what happens to (a) Reserves (c) Currency (c) Monetary base Question 3 (a) If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, what is the M1 money multiplier? Please show your work b) Following part (a), if currency in circulation increases to $450 billion (everything else remains the same), what is the M1 money multiplier? Please show your work? Following part (a), if deposites increase to 850 (everything else remains the same), what is the M1 money multiplier? Please show your work?

Explanation / Answer

2-Fed is the central banking system in US called as federal reserve system which control,stablises,regulates the entire monetary system.a)-So if no bank holds excess reserves and public holds no currency .if a bank sells $100 security to the fed the reserves will increase by $100 because deposits will expand as bank will convert security into reserveso and it will increase as per the sale of security b)-More currency will be availabe to public with the increase in reserves with bank c)-with such a financial support the monetary base will get stronger as reserves will be available in the form of deposits.

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