1.Suppose the Fed decides to stimulate the economy. Assume there is no cash leakage and required reserve ratio is 25% now, and banks have no excess reserves.
A. Show how the Fed would increase M1 by 1 million dollars by changing the reserve ratio.
B. Show how the Fed would increase M1 by 1 million dollars through open market operation. Image text transcribed for accessibility: Suppose the Fed decides to stimulate the economy. Assume there is no cash leakage and required reserve ratio is 25% now, and banks have no excess reserves. Show how the Fed would increase M1 by 1 million dollars by changing the reserve ratio. Show how the Fed would increase M1 by 1 million dollars through open market operation.