An economy with $3 trillion in checkuable deposits, $191 billion in desired reserves and $88 billion in excess reserves. Currency in circulation is $959 billion.

1. What is the money supply in this economy?
2. Calculate the currency deposit ratio and the excess reserve ratio
3. What is the money multiplier in this economy?

Suppose the central bank conducts an open market purchase. Specifically, the central bank purchases $21 billion of government bonds held by banks. 4. If the ratios calculated in question 1 remain unchanged, what do you predict will be the effect on this economy's money supply?

5. Consider the same open market purchase as in question 4, except that banks choose to hold all of these proceeds as excess reserves instead of making loans. Assuming that currency and deposits remain the same, what happens to the excess reserve ratio and the money multiplier?