II. The Money Supply Process 40 points Suppose that you observe the following information regarding the balance sheets of the Federal Reserve System and the U.S. banking system: Federal Reserve System System (in billions) Assets Liabilities Securities $6,250 Reserves $1,250 Loans to Fis $0 Currency $5,000 Banking System (in billions) Assets Liabilities Required Reserves $1,000 Deposits $10,000 Excess Reserves $250 Capital $1,000 Securities $200 Loans $9,550 (a) Assuming that the required reserve ratio is 10%, calculate the following using the table provided on the following page): The level of the monetary base (in billions) The level of the money supply in billions) The currency ratio The excess reserves ratio The money multiplier Monetary Base = Money Supply = Currency Ratio = Excess Reserve Ratio = Required Reserve Ratio = 0.100 Money Multiplier = (b) Suppose the U.S. economy is experiencing rapid economic growth and inflation and the central bank responds by conducting a $100 billion sale of securities to U.S. banks. Using the ratios you calculated in part a, predict the effects that this open market operation will have on the monetary base and the money supply. Monetary Base = Money Supply = (c) Briefly describe two reasons why the money multiplier that you calculated in part a might become unstable. How would this affect the ability of the central bank to conduct monetary policy? II. The Money Supply Process 40 points Suppose that you observe the following information regarding the balance sheets of the Federal Reserve System and the U.S. banking system: Federal Reserve System System (in billions) Assets Liabilities Securities $6,250 Reserves $1,250 Loans to Fis $0 Currency $5,000 Banking System (in billions) Assets Liabilities Required Reserves $1,000 Deposits $10,000 Excess Reserves $250 Capital $1,000 Securities $200 Loans $9,550 (a) Assuming that the required reserve ratio is 10%, calculate the following using the table provided on the following page): The level of the monetary base (in billions) The level of the money supply in billions) The currency ratio The excess reserves ratio The money multiplier Monetary Base = Money Supply = Currency Ratio = Excess Reserve Ratio = Required Reserve Ratio = 0.100 Money Multiplier = (b) Suppose the U.S. economy is experiencing rapid economic growth and inflation and the central bank responds by conducting a $100 billion sale of securities to U.S. banks. Using the ratios you calculated in part a, predict the effects that this open market operation will have on the monetary base and the money supply. Monetary Base = Money Supply = (c) Briefly describe two reasons why the money multiplier that you calculated in part a might become unstable. How would this affect the ability of the central bank to conduct monetary policy