1. If households currency-deposit ratio is 1.25, and they desire to maintain $9.25 in liquid savings assets for each dollar in their checking account, what must the banks excess reserves ratio be if the money multiplier is 10? If the banks changed their excess reserves ratio to one dollar for every $1000 of transaction deposits, compute the effect this would have on the money multiplier. (You may have to assume the requirement reserve ratio in this problem).

2. Suppose the Federal Reserve uses data to estimate the currency-deposit ratio to be 0.90, the ratio of liquid savings assets to transaction deposits to be 8.00, and the excess reserves ratio to be 0.001.

1. If it wished to increase M2 by $10 billion, how much would it have to raise the monetary base?
2. How far off would the Federal Reserve have been if it conducted policy as you describe in a., but the currency-deposit ratio turned out to be 1?
3. How far off would the Federal Reserve have been if it conducted policy as you described in a., but the liquid asset to transaction deposits ratio turned out to be 10?
4. How far off would the Federal Reserve have been if it conducted policy as you described in a., but the excess reserve ratio turned out to be 0.003?