Category	Value
Total Reserves (asset for private banks, kept at Federal Reserve)	$100 Billion
Currency (assets for firms, households)	$50 Billion
Value of Euros in the U.S. (assets for private banks, firms, households, etc.)	$1 Billion
U.S. Gov't bonds (assets for private banks, firms, households, etc.)	$30 Billion
Demand deposits (liability for private banks)	$1 Trillion
Corporate and consumer loans (asset for private banks)	$400 Billion
Mortgage loans (asset for private banks)	$485 Billion
Certificates of Deposit, CDs (liability for 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):
   1. What is the money supply (M1)?
   2. What is the total amount (in $) of reserves that banks are legally required to keep?
   3. What is the total amount (in $) of reserves that banks have on hand to lend?

1. If Federal Reserve buys $20 Billion in bonds from private banks:
   1. What is the total amount (in $) of reserves that banks now have on hand to lend?
   2. Using the simple deposit multiplier, how much additional money (M1) is created by this process?
   3. 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?
   4. What effect will this policy have on investment expenditure? Why?
   5. What effect will this policy have on consumption expenditure? Why?
   6. Is this monetary policy or fiscal policy? Contractionary or expansionary? Explain.
   7. Thinking about the relationship between aggregate demand, short-run aggregate supply, and long-run aggregate supply:
      1. When would this policy be appropriate? Explain.
      2. When would this policy be inappropriate? Explain.