1. Assume the banking system has $100 billion in demand deposits and $10 billion in reserves. In addition, assume that the required reserve ratio is 5%. Answer the following questions:

1. How much excess reserves are in this system?
2. What is the value of the money multiplier?
3. What is the maximum amount of change in demand deposit creation that could take place if the banking system lent out all of its excess reserves.

2.Graphically demonstrate how an increase in the level of aggregate output can have an impact on the money market and ultimately on the equilibrium interest rate.