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b. Suppose the central bank conducts an unusually large open market purchase ofbonds held by banks of $1400 billion due to a sharp contraction in
b. Suppose the central bank conducts an unusually large open market purchase ofbonds held by banks of $1400 billion due to a sharp contraction in the economy. Assuming the ratios you calculated in part [a] remain the same, predict the effect on the money supply. c. Suppose the central bank conducts the same open market purchase as in part [b], except that banks choose to hold all of these proceeds as excess reserves rather than loan them out, due to fear of a nancial crisis. Assuming that currency and deposits remain the same, what happens to the amount of excess reserves, the excess reserve ratio, the money supply, and the money multiplier? d. During the nancial crisis in 2008, the Federal Reserve began injecting the banking system with massive amounts of liquidity, and at the same time, very little lending occurred. As a result, the M1 money multiplier was below 1 for most ofthe time from October 2008 through 201 1. How does this scenario relate to your answer to part (c)
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