1. Assume that depositors withdraw $4,000 from Otis Bank, and that the bank has $4,000 in excess reserves. ( ____/7)
   1. What is the initial change in M1 money supply? Explain your answer (____/2)
   2. If the reserve requirement is 10%, what would be the maximum change in the money supply? Explain your answer (____/2)
   3. Now assume that Otis Bank cannot meet its required reserve amount at the end of the day. Name two possible actions it can take to avoid insolvency. (____/2)
   4. Fully explain why the central bank requires banks to hold a portion of deposits. (____/1)