Suppose that the nonbank public holds $4000 in currency and banks hold $8000 in total reserves. The banking system has a total of $30,000 in checkable deposits. The reserve requirement is 12%. a. Compute the monetary base. [0.5] b. Compute required reserves. [1] c. Compute excess reserves. [0.5] d. Money multiplier

--i. Compute the currency-deposit ratio. [1] --ii. Compute the excess reserves-deposit ratio. [1] --iii. Compute the money multiplier. You can approximate to the nearest hundredths place (two digits after the decimal). [2] e. Compute the money supply two ways. --i. First, compute the money supply using the money multiplier formula above. [1] --ii. Then, compute the money supply using the definition of the money supply (M1) to check your answer. [0.5] 2. Suppose the Federal Reserve conducts and open market sale of $500. The nonbank public holds the same fraction of currency relative to deposits. Banks hold the same fraction of excess reserves, and the Fed keeps the reserve requirement unchanged. Compute the change in the monetary base, and the change in the money supply and be sure to indicate the direction of the change in both variables. [2.5] 3. State how each of the following would affect the money multiplier, monetary base, and money supply. Use the equation on the front page to justify your answer, identifying which component(s) is(are) changing in the money multiplier formula. If the money multiplier is changing, be precise about which component(s) is(are) changing and in which direction. Note, it is possible that one or more of these three variables may remain unchanged. [6] a. The Federal Reserve increases the interest paid on reserves. b. The Federal Reserve buys $200 in securities. c. Depository institutions implement the use of mobile apps, increasing the range of online banking services available to customers through their mobile devices.