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6. Answer the following questions about monetary policy: a. Explain why $100 deposited in the bank and $100 of bonds purchased by the central bank don't have the same effect on the total money supply. In your answer, identify which of the two has the greater effect and fully explain why. b. Assume that the Fed has purchased bonds from banks totaling $20 billion. If the required reserve ratio is 0.25, calculate the maximum change in loans throughout the banking system. (Hint: this is a not the same question – and answer – as asking for the maximum change to the money supply.)

          6. Answer the following questions about monetary policy:
a. Explain why $100 deposited in the bank and $100 of bonds purchased by the central bank don't have the same effect on the total money supply. In your answer, identify which of the two has the greater effect and fully explain why.
b. Assume that the Fed has purchased bonds from banks totaling $20 billion. If the required reserve ratio is 0.25, calculate the maximum change in loans throughout the banking system. (Hint: this is a not the same question – and answer – as asking for the maximum change to the money supply.)

6. Answer the following questions about monetary policy:
a. Explain why 100 deposited in the bank and100 of bonds purchased by the central bank don't have the same effect on the total money supply. In your answer, identify which of the two has the greater effect and fully explain why.
b. Assume that the Fed has purchased bonds from banks totaling 20 billion. If the required reserve ratio is 0.25, calculate the maximum change in loans throughout the banking system. (Hint: this is a not the same question – and answer – as asking for the maximum change to the money supply.)

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