3. Suppose that the required reserve ratio is 9%, currency in circulation is 620 billion, the

amount of checkable deposits is 950 billion, and excess reserves are 15 billion.

a. Calculate the money supply, the currency deposit ratio, the excess reserve ratio, and the

money multiplier. (5 points)

b. Suppose the central bank conducts an unusually large open market purchase of bonds held

by banks of 1,300 billion due to a sharp contraction in the economy. Assuming the ratios you

calculated in part (a) remain the same, predict the effect on the money supply. (10 points)