2.Suppose that currency in circulation is $600 billion, the amount of checkable deposits is $900 billion, and excess reserves are $15 billion.The required reserve ratio on checkable deposits is 10%.

a)Calculate the money supply, the currency-deposit-ratio, the excess-reserve-deposit-ratio, and the money multiplier.

b)Suppose that the central bank conducts an unusually large open-market purchase of bonds held by banks in the amount of $1,400 billion due to a sharp contraction in the economy.Assuming that the ratios you calculated in part (a) do not change, what do you predict will be the effect on the money supply?Also, what will happen to currency in circulation and checkable deposits in the banking system after the open-market purchase has run its course?