MONEY. (True/False) and explain: The Federal Reserve's use of open market operations (purchases and sales of securities), along with its control of lending to banks, and the ability to determine the amount of required reserves allows it to determine the quantity of money (M) in the economy.

In your explanation make use of the equation M = m *MB as needed, where m is the M1 money multiplier and MB is the monetary base (MB = Currency + Reserves) and m = where e, r, and c are excess reserves, required reserves, and currency, each divided by deposits.

a) Explain why a simple model of the multiplier which excludes e, and c overstates the true money multiplier.

b) During the financial crisis of 2008 the money multiplier (as defined above) dropped dramatically to 1 or even below 1 and short-term interests rate fell to close to zero. Output was substantially below potential. What do these events imply about the ability of the conventional tools of monetary policy to stimulate economic activity?