Problem
1. Suppose that the value of the potential money multiplier is equal to 4. What is the reserve ratio?
2. Consider a world in which there is no currency and depository institutions issue only transactions deposits. The reserve ratio is 20 percent. The central bank sells $1 billion in government securities. What ultimately happens to the money supply?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.