2. The reserve requirement is the amount of funds that banks must hold in reserves against specific deposit accounts. The dollar amount of a bank's reserve requirement is based on the amount of a bank's net total transaction accounts. Since 1982, the first few million dollars of net transaction accounts have constituted anexemption amount, an amount exempt from the reserve requirement, with the exemption amount starting off at $2 million in 1982 and reaching $13.2 million in 2014. The amount of net transaction accounts is subject to a 3% required reserve ratio. Thislow-reserve trancheis adjusted each year. In 1980, it was $89.0 million and it reached $25 million in 2014. Net transaction account amounts over the low-reserve tranche level are subject to a 10% required reserve ratio.

Fill in the blank: (Options for fill in the blank are in BOLD)

2.1 Suppose that the level of exemption amount increased. Then, ceteris paribus, the amount of required reserves will (Increase/Decrease/Not Change) and the monetary base will (Increase/Decrease/Not Change)

2.2 Suppose now that the low-reserve tranche increased. Then, ceteris paribus, the amount of required reserves will (Increase/Decrease/Not Change) and the monetary base will (Increase/Decrease/Not Change).