Answer to Question #38086 in Macroeconomics for Helen K.

Question

Suppose the Fed sells $5 million worth of bonds to Econobank.

What happens to the reserves of the bank?
What happens to the money supply in the economy as a whole if the reserve requirement is 10%, all payments are made by check, and there is no net drain into currency?
How would your answer in part b be affected if you knew that some people involved in the money creation process kept some of their funds as cash?