1)Using the five criteria in the book, explain how U.S. currency is suitable to use as a medium of exchange.

2)Suppose the Federal Reserve purchases $10,000 of Treasury bonds from you and that you deposit the $10,000 into your checking account deposit at Bank Y. Assume that Bank Y has no excess reserves at the time you make your deposit and that the required reserve ratio is20 percent.

A. Use a T-account to show the initial effect of this transaction on Bank Y's balance sheet.

b. Suppose that Bank Y makes the maximum loan they can from the funds you deposited. Use a T-account to show the initial effect on Bank Y's balance sheet from granting the loan. Also include in this T-account the transaction from question (a.).c. Now suppose that whoever took out the loan in question (b) writes a check for this amount and that the person receiving the check deposits it in Bank Z. Show the effect of these transactions on the balance sheet of Bank Y and Bank Z, after the check has been cleared. On the T-account for Bank Y, include the transactions from questions (a) and (b).d. What is the maximum increase in checking account deposits that can result from your$10,000 deposit? What is the maximum increase in the money supply? Explain.2)

3)What actions should the Fed take if it believes the economy is about to experience a high rate of inflation?3)

4)Use a graph to show the effects of an expansionary monetary policy moving an economy out of recession and to potential real GDP. Explain what happens to aggregate demand, real GDP, and the price level.4)

5)Use a graph to show the effects of a contractionary monetary policy to reduce inflation and move an economy back to potential real GDP. Explain what happens to aggregate demand, real GDP, and the price level.