QUESTION 4 Bank W borrows $10 million from the Federal Reserve and lends out $8 million to firm X and keeps $2 million in vault cash. Firm X deposits $6 million in a checking account at Bank Y and bank Ylends out $5 million to Firm Z. Firm Z buys farm equipment with the $5 million. The farm equipment manufacturer spends the 55 million money on parts, rent, labor, interest and dividends. $4 million of the farm equipment expenditures end up in checking accounts at various banks. These banks lend out three million to other small businesses that ends up in checking accounts at other banks. The initial loan to bank W by the Fed: Did not change the money supply Loans to banks by the Fed are not open market operations so they do not increase the money supply, Increased the money supply by less than $10,000,000 Increased the money supply by more than $10,000,000. QUESTION 5 If the Board of Governors of the Federal Reserve increases the reserve requirement then the money supply will decline. - True False