Please solve all parts of this problem set. In your solution to each part, please show the calculations that support your final answer.

Question 1: Consider an economy with $1 trillion in chequable deposits, $90 billion in desired reserves and $44 billion in excess reserves. Currency in circulation is $650 billion. (i) What is the money supply in this economy? Calculate the currency deposit ratio, the excess reserve ratio, and the money multiplier. Suppose the central bank conducts an open market purchase. Specifically, the central bank purchases $12 billion in government bonds held by banks. (ii) If the ratios calculated in part (i) remain the same, what do you predict will be the effect on this economy's money supply? (iii) Consider the same open market purchase as in part (ii), except that banks choose to hold all of these proceeds as excess reserves instead of making loans. Assuming that currency and deposits remain the same, what happens to the excess reserve ratio and the money multiplier? Now consider the same scenario as in part (iii). That is, the central bank undertakes an open market purchase and banks choose to hold all of the proceeds as excess reserves. The only difference now is that we will consider an unusually large open market purchase (i.e., much more than $12 billion). (iv) Would it be possible for such a large open market purchase to bring the money multiplier below 1 in this economy? If so, how big would the open market purchase have to be