The following are simplified consolidated balance sheets for the commercial banking system and the Federal Reserve Banks. All figures are in billions of dollars, FRBs = Federal Reserve Banks, and CBs = Commercial Banks. R = 20%. Assume all Commercial Bank Reserves are kept on deposit in the Federal Reserve Banks.

Banking System	(0)	(1)	Federal Reserve Banks	(0)	(1)
Assets:			Assets:
Reserves	155	$______	Securities	542	$______
Securities	141	______	Loans to CBs	25	______
Loans	329	______	Liabilities:
Liabilities:			Reserves of CBs	155	______
Checkable Deposits	600	______	Treasury Deposits	30	______
Loans from FRBs	25	______	Federal Reserve Notes	382	______

a. The money multiplier is ______.

b. Perform the following transaction, making appropriate changes in column (1) of each balance sheet: The Fed buys $10 billion in securities from commercial banks. For your response, write CB: and put the five numbers (going down the column) separated by commas, then FRBs: and put those five numbers separated by commas.

c. The change in commercial bank reserves as a result of the transaction is $______ billion and the change in the money-creating potential of the banking system is $______ billion.

d. This Fed action represents ____________ (contractionary / expansionary) monetary policy meant to ________ (lower / raise) market interest rates and __________ (increase / decrease) aggregate demand to eliminate a(n) _____________ (recessionary / inflationary) gap.