1.) A purchase of U.S. government securities by the Fed causes

a.) an expansion of the money supply equal to the amount of the securities purchased.

b.) a contraction of the money supply equal to the amount of the securities purchased.

c.) an expansion of the money supply of more than the amount of the securities purchased.

d.) a contraction of the money supply of more than the amount of the securities purchased.

2.) If a bond dealer sells a government bond to the Fed for $100,000, and the reserve ratio is 10 percent, then the bank that receives a $100,000 deposit from the dealer can expand its loans by ________, and the money supply can increase by as much as ________.

a.) $80,000; $800,000

b.) $10,000; $100,000

c.) $90,000; $1,000,000

d.) $90,000; $900,000

3.) Suppose your $50,000 certificate of deposit matures and you transfer the funds to your checking account. This causes

a.) M1 to decrease by $50,000 and M2 to increase by $50,000.

b.) M1 to increase by $50,000 and M2 to remain the same.

c.) both M1 and M2 to increase by $50,000.

d.) no change to either M1 or M2.