The reserve requirement, open market operation and the money supply 6. The reserve requirement, open market operations, and the moneysupplyConsider a banking system where the Federal Reserve uses required reserves to control the money supply. (This was the case in the U.S. prior to2008.) Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. Tosimplify the analysis, suppose the banking system has total reserves of $400. Determine the money multiplier and the money supply for each reserverequirement listed in the following table.Reserve Requirement(Percent)2010Simple Money MultiplierA higher reserve requirement is associated with aMoney Supply(Dollars)money supply.Suppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and that$worth ofhouseholds do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations toU.S. government bonds.Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economicconditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 25%. This increase in the reserve ratio causes the▼ $worth of U.S. government bonds in ordermoney multiplier to toto. Under these conditions, the Fed would need toto increase the money supply by $200.Which of the following statements help to explain why, in the real world, the Fed cannot precisely control the money supply? Check all that apply.The Fed cannot control the amount of money that households choose to hold as currency.The Fed cannot control whether and to what extent banks hold excess reservesMacBook AirDIIFRF9F19F11XF12G 2Peserves and that households do not hold currency, so the only form of money is demand deposits. Tosimplify the analysis, suppose the banking system has total reserves of $400. Determine the money multiplier and the money supply for each reserverequirement listed in the following table.Reserve Requirement(Percent)2010F2A higher reserve requirement is associated with aSimple Money MultiplierSuppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and thathouseholds do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to YU.S. government bonds.worth of3Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economicconditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 25%. This increase in the reserve ratio causes themoney multiplier to to. Under these conditions, the Fed would need to $worth of U.S. government bonds in orderto increase the money supply by $200.80Which of the following statements help to explain why, in the real world, the Fed cannot precisely control the money supply? Check all that apply.The Fed cannot control the amount of money that households choose to hold as currency.The Fed cannot control whether and to what extent banks hold excess reserves.The Fed cannot prevent banks from lending out required reserves.F3$4QF467 dº%Money Supply(Dollars)5F5money supply.T6MacBook AirF6Y&7F7U*8DIIFB(98:F9O)0↓F10APF11+=10)F12A-Zbongodelete

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The money-multiplier process defines how an increment in the monetary base causes the money supply…