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2. Suppose the reserve requirement ratio on banks is 10%, households/firms do not hold any currency (i.e., rr=0 ), and banks do not hold any excess reserves (i.e., rr=10% ). a) Suppose the Fed conducts an open market purchase of $100 government bonds from the banking system. Reflect the immediate impact of this open market operation in the balance sheets below. Also reflect the changes in the balance sheet of the banking system due to the money multiplier process. (Put + or , and appropriate number, to reflect the changes. Leave the unchanged entries as blank.). How much did the monetary base and the level of the money supply change as a result of the open market operation in part (a)? What is the money multiplier? Explain. Montory Base =100 \& MB. Maymuldiplier = Moray oultipler =r1=0,11=10 Morey supply =1000# Suppose now the Fed, as part of its "Quantitative Easing" policy, conducts an open market purchase of $500 long-term mortgage-backed securities (MBS) from the banking system. Furthermore, assume that banks decide to hold $400 of excess reserves following the QE policy. Reflect the immediate impact of this open market operation in the balance sheets below. Also reflect the changes in the balance sheet of the banking system due to the money multiplier process. (Put + or , and appropriate number, to reflect the changes. Leave the unchanged entries as blank.)

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