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The Federal Reserve has the ability to manipulate/change the money supply by controlling the monetary base through reserve accounts. However, the banking industry plays a crucial role in the money supply process through multiple deposit creation. The multiple increase in deposits generated from an increase in the banking system’s reserves is called the simple deposit multiplier which is used in the formula to calculate the resulting change in the money supply. a)   Briefly explain the model highlighting its’ flaws and the three main players in the money supply process. b)   In the simple deposit expansion model, if the required reserve ratio is 20% and the Fed increases reserves by $100, checkable deposits can potentially expand by how much? c)   Based on the bank’s role in the money supply process, would a shift in demand from depository accounts to currency in hand increase or decrease the money supply? d)   Briefly explain your reasoning in part (c).

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Name four conventional monetary policy tools and one non-conventional monetary policy tool used by the Federal Reserve and briefly explain each.

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Banks subject to reserve requirements set by the Federal Reserve System include

“Construct” T-accounts for the following transactions. Be sure to explain what happens to the assets and liabilities for First National Bank and the Federal Reserve for the following scenarios.  Be sure to identify what happens to reserves and the monetary base for each. a)  The Federal Reserve purchases $2 million of bonds from First National Bank. b)   The Federal Reserve finances a loan of $10 million for First National Bank. At the same time, depositors withdraw $5 million and hold it as currency.

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Apocrine glands, which begin to function at puberty under hormonal influence, seem to play little role in thermoregulation but make you smell bad.  Where would we find these glands in the body?

Answer the questions on the money multiplier based on the following information: Suppose that the required reserve ratio is 10%, currency in circulation is $600 billion, the amount of checkable deposits is $950 billion, and excess reserves is $20 billion. a) The money supply is ____________ billion. b) The currency deposit ratio is _____________. c) The excess reserves ratio is ____________. d) The money multiplier is ____________.   e)   Suppose the central bank conducts a large open market purchase of bonds held by banks in the amount of $1,400 billion. Assuming the previous ratios calculated are the same, the money supply should _______________ to $_________________ billion.   f)   Briefly explain what would happen to the money supply if the banks chose to hold these proceeds in excess reserves rather than loan them out.