1. Remembering that currency in a bank's vault is not considered part of the money supply, describe why a consumer depositing $1000 in currency (part of M1) in a bank account and receiving a demand deposit (also part of M1) in the amount of $1000 in exchange does not change the money supply (M1).
2. Assuming the reserve ratio is 10%, how much of the $1000 deposit must the bank keep in reserves? How much can it loan out?
3.Suppose the Federal Reserve sells a bond for $1000. The money goes from ___________ (the Fed or the public's hands) to _____________ (the Fed or the public's hands) and the amount of currency in the public's hands __________ (decreases or increases)