Problem
Suppose that the Federal Reserve purchases a bond for $100,000 from Donald Truck, who deposits the proceeds in the Manufacturer's National Bank.
a. What will be the impact of this transaction on the supply of money?
b. If the reserve requirement ratio is 20 percent, what is the maximum amount of additional loans that the Manufacturer's Bank will be able to extend as the result of Truck's deposit?
c. Given the 20 percent reserve requirement, what is the maximum increase in the quantity of checkable deposits that could result throughout the entire banking system because of the Fed's action?
d. Would you expect this to happen? Why or why not? Explain.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.