a) In what sense does the Fed "create money"?
b) Suppose that the minimum required reserve ratio for banks was 1/11. Also suppose that banks held no excess reserves and that currency in circulation was unchanged. What action in the Treasury bill market would the Fed have to take to increase bank checking account deposits by $990 million?
3) Assuming that banks used all their excess reserves to support an increase in the volume of bank lending, by how much would bank lending expand if the Fed undertook the policy action that was your answer to question (2)?
4) Suppose that households in the U.S. increased their desired holdings of currency by $55 million as the Fed was adding reserves to the banking system. How would your answer to question (2) be affected, assuming that the Fed still wished to generate an increase of $990 million in checking account deposits?