Part 2 - Check Your Understanding- Suppose the Fed buys $\$ 1,000$ in bonds from Bank of LaMoney, the reserve requirement is 10\%, and the bank holds $10 \%$ excess reserves. 15. How does the bank's choice to hold $10 \%$ of deposits as excess reserves affect the size of the money multiplier? Explain your answer. 16. Assume that all banks hold $10 \%$ excess reserves. Calculate the total increase in the money supply. 17. Suppose all banks decide to lend all excess reserves. Calculate the total increase in the money supply from the original $\$ 1,000$ open-market bond purchase. 18. If the reserve requirement is $10 \%$ and a bank has $\$ 8,000$ in deposits and $\$ 1,000$ in reserves, how much in excess reserves does the bank have? 19. A bank has $\$ 200,000$ in deposits and no excess reserves. The reserve ratio is 0.1 and a customer withdraws $\$ 10,000$. To meet the reserve requirement, by how much must the bank increase its reserves? 20. A bank has $\$ 400,000$ in deposits and no excess reserves. The reserve ratio is 0.2 and a customer withdraws $\$ 10,000$. To meet the reserve requirement, by how much must the bank increase its reserves? 21. Draw a correctly labeled money market graph and a correctly labeled $A S / A D$ graph showing a negative output gap. Show the result of the Fed's open-market purchase on both graphs. 22. Which of the four components of GDP are most directly impacted by monetary policy? Explain your reasoning. 23. Explain how the open-market purchase affects the price level and real output on the ASIAD model.