Topic 12: Fed's Balance Sheet 1. Write down the equation that describes the relationship between monetary base and money supply 2. In our initial example, we conveyed that the money multiplier m = mis problematic. What are the two assumptions made and why is this formulation problematic? 3. Suppose that total bank reserves are $800B, currency in circulation is at $300B, the required reserve ratio is 10% and $100 B represent the total deposits in the banking system. Calculate the value of the money multiplier and the money supply. (Show all work) 4. Suppose that inflation spikes more than expected and the Fed increases the required reserve to 15% and deposits in the banking system decrease by 50%. Calculate the new value of the money multiplier and money supply. How does it compare to a)? Are you surprised by this result? (Show all work)