Part 2 - Check Your Understanding - Suppose the Fed buys $1,000 in bonds from Bank of LaMoney, the reserve requirement is 10%, and the bank holds 10% excess reserves. 15. How does the bank's choice to hold 10% of deposits as excess reserves affect the size of the money multiplier? Explain your answer. 16. Assume that all banks hold 10% excess reserves. Calculate the total increase in the money supply. 17. Suppose all banks decide to lend all excess reserves. Calculate the total increase in the money supply from the original $1,000 open-market bond purchase. 18. If the reserve requirement is 10% and a bank has $8,000 in deposits and $1,000 in reserves, how much in excess reserves does the bank have? 19. A bank has $200,000 in deposits and no excess reserves. The reserve ratio is 0.1 and a customer withdraws $10,000. To meet the reserve requirement, by how much must the bank increase its reserves? 20. A bank has $400,000 in deposits and no excess reserves. The reserve ratio is 0.2 and a customer withdraws $10,000. To meet the reserve requirement, by how much must the bank increase its reserves? 21. Draw a correctly labeled money market graph and a correctly labeled AS/AD graph showing a negative output gap. Show the result of the Fed's open-market purchase on both graphs. L L 22. Which of the four components of GDP are most directly impacted by monetary policy? Explain your reasoning. 23. Explain how the open-market purchase affects the price level and real output on the AS/AD model