1. The FOMC has instructed the FRBNY Trading Desk to purchase $740 million in U.S. Treasury securities. The Federal Rese

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1. The FOMC has instructed the FRBNY Trading Desk to purchase
$740 million in U.S. Treasury securities. The Federal Reserve has
currently set the reserve requirement at 5 percent of transaction
deposits. Assume U.S. banks withdraw all excess reserves and give
out loans.

a. Assume also that borrowers eventually
return all of these funds to their banks in the form of transaction
deposits. What is the full effect of this purchase on bank deposits
and the money supply?
b. What is the full effect of this purchase
on bank deposits and the money supply if borrowers return only 95
percent of these funds to their banks in the form of transaction
deposits?

(For all requirements, enter your answers in billions.
Round your final answers to 2 decimal places. (i.e., 5,500,000,000
should be entered as 5.50).)\
a. (Increase / Decrease) in bank deposits and money supply
_______ billion
b. (Increase / Decrease) in bank deposits and money supply
_______ billion
2. The FOMC has instructed the FRBNY Trading Desk to
purchase $360 million in U.S. Treasury securities. The Federal
Reserve has currently set the reserve requirement at 6 percent of
transaction deposits. Assume U.S. banks withdraw all excess
reserves and give out loans.

a. Assume also that borrowers eventually
return all of these funds to their banks in the form of transaction
deposits. What is the full effect of this purchase on bank deposits
and the money supply?
b. What is the full effect of this purchase
on bank deposits and the money supply if borrowers return only 94
percent of these funds to their banks in the form of transaction
deposits?

(For all requirements, enter your answers in billions.
Round your final answers to 2 decimal places. (i.e., 5,500,000,000
should be entered as 5.50).)
a. (Increase / Decrease) in bank deposits and money supply
________ billion
b. (Increase / Decrease) in bank deposits and money supply
________ billion