Suppose that the Fed buys $2 million in US government securities from Alexander, a private bond trader. a. Use balance s

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Suppose that the Fed buys $2 million in US government securities
from Alexander, a private bond trader.
a. Use balance sheets to show the effects of this transaction on
the appropriate accounts of a commercial bank and the Federal
Reserve.
b. Assuming a required reserve ratio of 10% and a banking system
that is fully loaned up initially, show the effects on AR, RR, and
ER.
c. What is the maximum possible expansion in the money supply
from new commercial bank lending? d. What is the total change in
the money supply, including both the Fed purchase and the lending
by banks?