1) Given that currency = $100 billion, checkable deposits = $400 billion, the required reserve ratio = 10%, and excess reserves = $10 billion:

a) Calculate the currency ratio c.

b) Calculate the excess reserve ratio er.

c) Calculate the money multiplier.

d) Calculate the monetary base.

e) If the Federal Reserve purchases $5 billion of Treasuries from the banking system, by how much will the money supply change assuming the currency and excess reserve ratios stay the same?

f) Using the Liquidity Preference Theory, what effect would you expect to see with interest rates in the short term and why?

g) Using the Supply and Demand for Bonds Theory, what effect would you expect to see with interest rates and why? Remember that the Fed can control the supply of Treasuries in the banking system by their open market operations.

h) Based on the above analysis, what two aspects of the banking system can the Fed influence by open market operations and how can they affect the economy?

i) If banks borrowed $5 billion from the Fed using the discount window, would you expect the change in the money supply to be the same or different given the same information and that banks will maintain the same excess reserve ratio? Why?

j) If banks borrowed $5 billion from each other using the fed funds market, would you expect the change in the money supply to be the same or different given the same information and that banks will maintain the same excess reserve ratio? Why?