1. Using a required reserve ratio of 8% and assuming that banks keep no excess reserves, what is the value of government securities the Fed must sell if it wants to decrease the money supply by $75 billion?

2. Using the given measures of U.S. money supply, please answer the following questions. Note: the given measures are in billions.

Checking deposits = $100

Savings deposits = $640

CDs = $78

Currency = $88

Credit card balances = $60

Money market mutual funds = $90

Stocks=$800

Mortgage backs securities=$120

1. What is M1?

1. What is M2?

1. If households shift some money from checking deposits to savings deposits, what will happen to M1 and M2?

*Work is needed to be shown when necessary.