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Value Total reserves: $180 billion Transactions deposits: $800 billion Cash held by public: $300 billion Required reserve ratio: 0.20 \fEa. How large is the money supply (M1)? b. Are the banks fully utilizing their lending capacity? No, Now assume that the public deposited another $20 billion in cash in transactions accounts. c. What would happen to the money supply initially (before any lending takes place)? EAssuming the $20 billion in cash is not new money in the system, M'l will d. How much would the total lending capacity of the banking system be after this portfolio E switch? e. How large would the money supply be if the banks fully utilized their lending capacity? f. What three steps could the Fed take to offset the potential growth in M1? 0 0 Increase Increase Sell 0 0 because banks currently have reserve requirements the discount rate bonds billion in excess reserves. not change a