1. Suppose that the reserve requirement for chequing deposits is 15 % and the banks do not hold any excess reserves. What is the effect on the economy’s reserves and the money multiplier if the central bank sells $2 million of government bonds?  2. Now suppose the central bank lowers the reserves requirement to 5%, but the Savers’ banks choose to hold another 5% deposits as excess reserves. State two reasons why the Savers’ bank want to hold excess reserves.  3. Analyse briefly the impact of the overall change in the money multiplier and the money supply as a result of the policies implemented by the Savers’ bank.

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