Question: Explain and demonstrate using bank balance sheets what would happen to the money supply if the Central Bank made an open market sale of $2

  1. Explain and demonstrate using bank balance sheets what would happen to the money supply if the Central Bank made an open market sale of $2 million worth of securities to a private citizen. Assume that the bank with which the private citizen has an account is all "loaned up", has reserves of $10 million, deposits of $100 million and must follow a required reserve ratio of 10%.

2. Assume the Central Bank must increase the money supply. Explain two ways that it may be able to accomplish this objective.

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