Assume that the following data describe the condition of the commercial banking system:
Total reserves: $ 80 billion
Transactions deposits: $700 billion
Cash held by public: $300 billion
Reserve requirement: 0.10
(a) How large is the money supply (M1)?
(b) Are the banks fully utilizing their lending capacity?
(c) What would happen to the money supply initially if the public deposited another $20 billion in cash in transactions accounts?
(d) What would the lending capacity of the banking system be after such a portfolio switch?
(e) How large would the money supply be if the banks fully utilized their lending capacity?
( f ) What three steps could the Fed take to offset that potential growth in M1?