d.Now review each of the above three transactions, asking yourself these three questions:
(1) What change, if any, took place in the money supply as a direct and immediate result of each transaction?
(2) What increase or decrease in the commercial banks’ reserves took place in each transaction?
(3) Assuming a reserve ratio of 20 percent, what change in the money-creating potential of the commercial banking system occurred as a result of each transaction?
Transaction a:
1. The money supply
(Click to select)increaseddecreaseddid not change
.
2. Reserves
(Click to select)increaseddecreased
from $34 to $billion.
3. Money-creating potential
(Click to select)decreasedincreased
by $billion.
Transaction b:
1. The money supply
(Click to select)decreasedincreased
by $billion.
2. Reserves
(Click to select)decreasedincreased
from $34 to $ billion.
3. Money-creating potential
(Click to select)decreasedincreased
by $billion.
Transaction c:
1. The money supply
(Click to select)decreasedincreaseddid not change
.
2. Reserves
(Click to select)increaseddecreased
from $34 to $billion.
3. Money-creating potential
(Click to select)increaseddecreased
by $billion.