Question 4. part b

Question 4 a. The Fed decides to increase the money supply. What would be the appropriate open market operation? (9 marks) b. Assumptions: (1) The initial open market operation increases reserves by $100; (2) the required reserve ration is 0.20; (3) no currency is held by the nonbank public; (4) no excess reserves are held by banks. Fill in the Table 1 below for deposit expansion (16 marks) Table 1: Deposit Expansion Step Total Money Created Money Created Excess Reserves Required Reserves 1 2 3 4 500 0 0 100