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5. Suppose the FED buys $1 million bonds from a bank. Assume that the public does not want to hold any additional currency. a. What

5. Suppose the FED buys $1 million bonds from a bank. Assume that the public does not want to hold any additional currency.

a. What is the total increase in deposits in the economy if all banks keep 2% excess reserves (i.e. in addition to the 10% required by law)?

b. Describe the two first steps of the deposit creation process within the banking system.?

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