Suppose that the reserve requirement for checking= deposits is 10 percent and that banks do not hold any excess reserves.a. If the Fed sells $1 million of government bonds, what is the effect on the economy’s reserves and money supply?b. Now suppose the Fed lowers the reserve= requirement to 5 percent, but banks choose to hold another 5 percent of deposits as excess reserves. Why might banks do so? What is the overall change in the money multiplier and the money supply as a result of these actions?

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