1. Describe the effect each action below will have on the money supply. Explain your reasoning.

A. The Fed raises the discount rate from 5% to 10%.

B. The required reserve ratio is lowered from 20% to 10%.

C. The Fed sells $5 billion worth of T-bonds on the open market.

D. The Fed buys $5 billion worth of T-bonds on the open market.

E. Banks decide to keep more of their assets as reserves in order to avoid risking a shortage of the required reserve.

2. How does an expansionary monetary policy promote economic growth in the economy?

3.What is meant by the profit motive and how can it affect the goals of producers?