1. If the currency in circulation is $600 billion, checkable deposits are $1200 billion, the required reserve ratio is 10%, and excess reserves total $1.2 billion. Please define and calculate the money supply, monetary base, and money multiplier in the economy.

(20 marks)

2. How do the money multiplier and money supply change if the required reserve ratio decreases?

(15 marks)

3. How does the interest rate in the reserves market (e.g., the Federal Funds Rate) change if the required reserve ratio decreases? Please illustrate your answer using the demand and supply curves for reserves.

(15 marks)