Suppose the Federal Reserve decided to buy $50 billion worth of government securities in the open market. a. By how much will M1 change initially if the entire $50 billion is deposited into transactions accounts? Note: If M1 decreases be sure to include a negative sign (-) in front of your answer. M1 will initially change by: 50 billion b. How will the lending capacity of the banking system be affected if the reserve requirement is 10 percent? Note: If lending capacity decreases be sure to include a negative sign (-) in front of your answer. Total lending capacity will change by: billion c. How will banks induce Investors to respond to this change in lending capacity? If the money supply increases, interest rates will decrease J and investors will want to borrow more funds. If the money supply decreases, interest rates will increase and investors will want to borrow fewer funds. C