Suppose that the required reserve ratio is 8%, banks hold 5% of deposits as excess reserves, and

Question:

Suppose that the required reserve ratio is 8%, banks hold 5% of deposits as excess reserves, and the currency-to-deposit ratio is 2.
a. What is the value of the money multiplier?
b. If the Fed conducts open market operations and buys bonds from banks, what will happen to the money supply?
c. How would your answer to part b. change if banks become concerned about making loans and now choose to hold 20% of deposits as excess reserves?