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The central bank buys 10 000 worth of bonds in the open market from Elaine...

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The central bank buys 10 000 worth of bonds in the open market from Elaine who deposits the proceeds in her checking account at MSM Bank The banking system has limited reserves and the required reserve ratio is 5 a What is the amount by which MSM Bank s liabilities have changed Explain b Calculate the change in required reserves for MSM Bank Show your work c What is the dollar value of the maximum amount of new loans MSM Bank can initially make as a result of Elaine s deposit Explain d Based on the central bank s open market purchase of bonds calculate the maximum amount by which the money supply can change throughout the banking system Show your work e How will the change in the money supply in part d affect aggregate demand and the price level in the short run Explain

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