If the central bank increases bank reserves (or the monetary base) by $25,000, and the reserve requirement is 5%, then the total money supply increases by how much? Why? The best explanation will be mathematical and descriptive, with at least one appropriate graph.

Now suppose that people hold 15% of their money in currency. Show/figure out, and compare to your previous answer. What do the differences mean/why are the important?

Your friend from Reinhard Village argues that the Federal Reserve should increase in the money supply to stimulate the economy, eventually shifting Aggregate Demand. Assuming the world works the way your Reinhardian friend want it to, carefully explain how the Fed does it, making sure to discuss the role of banks.Show graphically (though without numbers) how it should work. The best answer will utilize approximate 5-6 graphs and a T account.

You counter your Reinhardian friend with a discussion of a ‘liquidity trap’. What is it and what impact would it have on the sort of monetary policy your friend outlined?

What is Cyclical Asymmetry? Discuss how Monetary Policy suffers from this ailment.