Q32. Suppose the Federal Reserve purchases $80 billion of government securities.

a. How will the purchases of $80 billion of government securities by the Federal Reserve change bank reserves and total checking account deposits in the banking system as a whole? Assume that banks do not hold any excess reserves, that households and firms do not change the amount of currency they hold, and that the required reserve ratio is 20 percent. (3pts)

b. Assume that banks hold some excess reserves. How will this new situation affect your answer in a? Briefly explain your reasoning. (2pts)