1. Assume there is an economy with a single bank, and the central bank sets the reserve requirement ratio at 10%. Assume also that the only bank had no transactions (i.e., no loans, reserves, or deposits) prior to an individual who deposits $10,000 of currency with the bank. Show your work. (a) As a result of this deposit, calculate the amount of required reserves, actual reserves, and excess reserves. (b) What is the size of the money multiplier for this economy? (b) After the bank has issued the maximum amount of loans, what will be the total amount of loans, deposits, and money in the economy? (d) If the central bank wants to increase the money supply by $6,000, should it buy or sell bonds? Also, how many bonds should it buy or sell? 2. Assume the banking system has $200 billion in demand deposits and $80 billion in reserves. In addition, assume that the required reserve ratio is 25%. Answer the following questions: a. How much excess reserves are in this system? b. What is the value of the money multiplier? c. How much of money supply will be created if the banking system lent out all of its excess reserves? 3. Fill in the following table by identifying whether it's a fiscal policy or monetary policy. Also indicate whether the proposed Federal Reserve action will increase or decrease the money supply. Policies Type of Policy Effect on money supply A increase in government spending A decrease in the required reserve ratio A sale of Government Securities (Treasury bonds) A lowering of the discount rate Buying government Securities (Treasury Notes) A decrease in taxes 4. Define the following: a) Required Reserve Ratio b) Discount Rate c) Federal Funds rate d) Open Market Operation What are the three tools of the Federal Reserve? Explain how each can be used to increase the money supply