The Fed injects an extra $6,000 into the economy, by buying some bonds from you that you no longer want to hold. You deposit all of this cash into your bank account. The banks have a required reserve ratio of 12%, and do not exceed this level. On a series of balance sheets (i.e. showing bank assets, and liabilities and net worth), trace through the first three rounds of transactions. Assume that when the bank lends money, all of this money is deposited back into the banking system. In a., after three rounds, how much additional money is there in the economy (including the initial injection of $6,000)? In a., after all rounds, how much additional money will have been created? In a., what is the value of the "money multiplier"? Now repeat a., but assume that only 80% of the value of the bank loans is redeposited in the banking system (i.e. there is cash drainage). In e., after three rounds, how much additional money is there in the economy? In e., after all rounds, how much additional money will have been created? [Hard.] In e., what is the value of the money multiplier? [Follows straightforwardly from g.]