The money supply in Leutonia is $5 billion, and the public holds no cash. The Leutonian Central Bank decides that it wants to double the money supply. It is considering an open market operation. The required reserve ratio in the country is 10%, and banks hold no excess reserves.

Should the Central Bank buy or sell bonds?

Explain.

How many dollars' worth of bonds should the Central Bank buy or sell?

Show your calculations.

If banksdohold excess reserves, and the publicdoeshold some cash, would the total increase or decrease in the money supply be higher or lower than the figure the Central Bank wants? Explain your answer.