Question 1: If the Fed decides to sell Treasury securities, does the money supply increase, decrease, or remain unchanged? Explain why.
Question 2: If the First Bank of Chicago decides to sell some its investments in Treasury securities to Citibank of New York, what is the net effect on the money supply? Explain.
Question 3: Assume that the reserve requirement is 12 percent and that the Fed uses open market operations by buying $200 million worth of Treasury securities. Also assume that banks use all of the funds except required reserves to make loans and that the public does not store any cash. Determine by how much the money supply should increase. Show your work.