A. Assume the required reserve ratio equals 12%. Find the maximum deposit expansion using the deposit multiplier formula.

1. The Fed bought $81 billion worth of securities from the banking system.

2. There is a new deposit of $81 billion in the banking system.

3. The Fed bought $243 billion worth of securities from the banking system.

4. There is a new deposit of $243 billion in the banking system.

B. State what happens to the a) excess reserve to deposit ratio, b) bank loans to the public, and c) the money supply.

1. market interest rates rise

2. market interest rates fall

3. expected deposit withdrawals rise

4. expected deposit withdrawals fall

C. State what happens to the a) discount loans, b) bank loans to the public, and c) the money supply.

1. market interest rates rise

2. market interest rates fall

3. the discount rate rises

4. the discount rate falls

D. State what happens to the a) currency to deposit ratio, b) the money supply.

1. wealth rises

2. wealth falls.

3. liquidity of deposits fall.

4. risk on deposits rise.

5. the trail of information left by deposits fall.

E. State what happens to the money supply.

1. the ratio of excess reserves to deposit rises

2. the required reserves to deposit ratio rises

3. the currency to deposit ratio rises

4. the monetary base rises.