Suppose the Fed buys $1 million of bonds from the First National Bank.

a. Suppose the First National Bank's holding of excess reserves increases by $1 million as a result but decides not to lend out any of these reserves. How much deposit creation takes place for the entire banking system?

b. Suppose the First National Bank uses the resulting increase in reserves to purchase securities only and not to make loans, what will happen to checkable deposits (assuming whoever selling securities to the bank will not deposit the money)?

c. If the First National Bank sells $1 million of bonds to the Fed to pay back $1 million on the discount loan it owes, what is the effect on reserves and the level of checkable deposits?