Assume that in the United States the required reserve ratio is 10%. Assume that the Federal Reserve buys $60 million in government securities from banks using open market operations.
a. Calculate the maximum possible change in the money supply and fully explain how you got your answer
b. Assume that the Federal reserve purchased the $60 million of securities from Clifford Bank. Did the demand deposits for Clifford Bank initially increase, decrease, or stay the same when the securities were purchased? Explain your answer.
c. Is this an example of expansionary policy or contractionary policy? Explain how will this would affect aggregate demand in the short run