Answer the question below by assuming that the following conditions prevail in the banking system:
- Reserve requirements equal to %10 on demand deposits accounts
- Currency in circulation amount to $40 billion - Savings and Time deposits amount to $400 billion
- Demand deposits amount to $200 billion
- The Banking System is holding $20 billion in excess reserves
a. Calculate the M1 multiplier.
b. Calculate the M2 multiplier.
c. If the Fed purchases $2 billion of securities from the banking system, what would the potential change in the M-1 monetary aggregate be? Why is this a potential change and not a definite change?