1. Do you agree or disagree with each of the following statements?Explain your answers.a. When the Treasury of the United States issues bonds andsells them to the public to finance the deficit, the moneysupply remains unchanged because every dollar of moneytaken in by the Treasury goes right back into circulationthrough government spending. This is not true when the Fedsells bonds to the public.b. The money multiplier depends on the marginal propensityto save.2. When the Fed adds new reserves to the system, some of thesenew reserves find their way out of the country into foreignbanks or foreign investment funds. In addition, some portion ofthe new reserves ends up in peoples pockets and mattressesinstead of bank vaults. These leakages reduce the money multiplierand sometimes make it very difficult for the Fed to controlthe money supply precisely. Explain why this is true.
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