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Assume that the reserve requirement for depository institutions is 15% the banking system as a whole holds no excess reserves, and the non bank public holding all of the currency it requires. The Federal Reserve Bank has purchased 500,00 worth of U.S Treasury Bonds form Bank A Perform the following calculations.

Describe the correct transactions that occur when Bank A creates money by lending its new excess reserves.

Describe the correct transactions that occur when additional money is created in a system of banks.

Describe how the the deposit expansion multiplier describes the creation of money.

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