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Suppose the Fed decides to increase the money supply. It purchases a government bond worth $2,000 from Antonia, a private citizen. Antonia deposits the check

Suppose the Fed decides to increase the money supply. It purchases a government bond worth $2,000 from Antonia, a private citizen. Antonia deposits the check in her account at First National Bank. Supposed the required reserve ratio is 0.2 (20%).

(a) Trace the effect of this change through three banks- First National, Second Federal, and Third State.

(b) How much money will be generated in this banking system?

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