Consider an open market purchase by the Fed of $14 billion of Treasury bonds. What is the impact of the purchase on the bank from which the Fed bought the securities? Compute the impact on M1 assuming that: (1) the required reserve ratio is 5 percent; (2) the bank does not wish to hold excess reserves; and (3) the public does not wish to hold currency.

The banks securities (Click to select)fallrise by $14 billion and its reserves fall or rise by $14 billion. Assuming that the required reserve ratio is 5 percent, banks do not want to hold excess reserves, and the public does not wish to hold currency, the simple deposit multiplier will be ? , so the value of deposits (and M1) will rise by ? $ billion.