Answer the following question

Assignment 6.1: Homework U.S. Economy Data Category Value Total Reserves (private banks) $100 Billion Currency [firms, households) $50 Billion Value of Euros in the U.S. (private banks, firms, households) $1 Billion Gov't bonds [private banks, firms, households) $30 Billion Demand deposits (private banks) $1 Trillion Certificates of Deposit, CDs (private banks) $10 Billion Reserve requirement on demand deposits .10 1) Given the above data about the U.S. economy (assume anything not listed is equal to zero): a. What is the money supply (M1)? b. What is the total amount (in $) of reserves that banks are legally required to keep? c. What is the total amount (in $) of reserves that banks have on hand to lend? 2) Let's say the Federal Reserve buys $20 Billion in bonds from private banks a. What is the total amount (in $) of reserves that banks now have on hand to lend? b. Using the simple deposit multiplier, how much additional money (M1) is created by this process? ". What will happen to the Federal Funds Rate, the prime rate, and other nominal interest rates in the economy? (Go up, down, stay the same?) Why? d. What effect will this policy have on investment? Why? e. What effect will this policy have on consumption? Why? Is this monetary policy or fiscal policy? Contractionary or expansionary? Explain. Thinking about the relationship between aggregate demand, short-run aggregate supply, and long-run aggregate supply: i. When would this policy be appropriate? Explain. ii. When would this policy be inappropriate? Explain