1. Bank W borrows $10 million from the Federal Reserve and lends out $8 million to firm X and keeps $2 million in vault cash. Firm X deposits $6 million in a checking account at Bank Y and bank Y lends out $5 million to Firm Z. Firm Z buys farm equipment with the $5 million. The farm equipment spends the $5 million money on parts, rent, labor, interest and dividends. $4 million of the farm equipment expenditures end up in checking accounts at various banks. The initial loan to bank W by the Fed:

		Increased the money supply by more than $10,000,000.
		Increased the money supply by less than $10,000,000.
		Did not change the money supply.
		Loans to banks by the Fed are not open market operations so they do not increase the money supply.