1. Use Balance Sheets to show the effects of this transaction. (5)
2. In direct consequence of this transaction, "What is the amount and direction of change in Narnia's money supply?" (2)
3. If, prior to this transaction, the commercial banks had no excess reserves, and if their required reserve ratio is 10%, determine 1)the amount of excess reserves now and 2) the size of the money multiplier. (5)
4. Construct and fill in two Balance Sheets to show the additional changes that would result if the commercial banks decided to loan out all their newly acquired excess reserves. (5)
5. What is the direction and magnitude of change in the money supply resulting from the total effect of the Bank of Narnia's open-market purchase of government securities. (2)

2. Suppose the central bank of Narnia purchases $10 million of government securities from the Narnian people. Further suppose that the bank pays for these securities by issuing cheques, which the sellers deposit in their chequing accounts in the commercial banking system. a. Use Balance Sheets to show the effects of this transaction. (5) b. In direct consequence of this transaction, \"What is the amount and direction of change in Narnia's money supply?\" (2) c. If, prior to this transaction, the commercial banks had no excess reserves, and if their required reserve ratio is 10%, determine 1)the amount of excess reserves now and 2) the size of the money multiplier. (5) d. Construct and fill in two Balance Sheets to show the additional changes that would result if the commercial banks decided to loan out all their newly acquired excess reserves. (5) e. What is the direction and magnitude of change in the money supply resulting from the total effect of the Bank of Narnia's open-market purchase of government securities. (2)