Consider the following monetary situation:
• The currency-to-deposit ratio is 1/4
• Required reserve ratio is 1/4
• The monetary base is 9 trillion
• Banks hold no excess reserves
a) Compute currency in circulation, checking deposits, the money supply, and the money multiplier
b) Imagine the Fed begins to pay interest on reserves held at the Fed. How would this affect the money multiplier?
c) Janet Yellen sells $100 billion worth of tbills. Compute what impact this has on the money supply.