1) In a diagram of the equilibrium model of bank reserves, identify the discount rate, the interest rate on reserves and the federal funds rate. Make sure you label everything clearly.
??2) In a given country, required reserves are 10%. If the FED use open market operations to buy bonds worth $100millions, compute the money multiplier of M1, and total change in M1 under the following assumptions.
a) Banks do not keep any excess reserves, and the public doesn’t keep any cash but deposit their funds into their checking accounts
b) Banks keep an extra %10 in Excess Reserves