Suppose the Federal Reserve decided to buy $15 billion worth of government securities in the open market. a. By how much will M1 change initially if the entire $15 billion is deposited into transactions accounts? Note: If M1 decreases be sure to include a negative sign (-) in front of your answer. M1 will initially change by: billion b. How will the lending capacity of the banking system be affected if the reserve requirement is 10 percent? Note: If lending capacity decreases be sure to include a negative sign (-) in front of your answer. Total lending capacity will change by: billion c. How will banks induce investors to respond to this change in lending capacity? If the money supply increases, interest rates will and investors will want to borrow more funds. If the money supply decreases, interest rates will and investors will want to borrow fewer funds.

Stocks a, b, and c are similar in some respects: each has an expected return of 10% and a standard deviation of 25%. stocks a and b have returns that are independent of one another; i.e., their correlation coefficient, r, equals zero. stocks a and c have returns that are negatively correlated with one another; i.e., r is less than 0. portfolio ab is a portfolio with half of its money invested in stock a and half in stock b. portfolio ac is a portfolio with half of its money invested in stock a and half invested in stock c. which of the following statements is correct? a. portfolio ab has a standard deviation that is greater than 25%.b. portfolio ac has an expected return that is less than 10%.c. portfolio ac has a standard deviation that is less than 25%.d. portfolio ab has a standard deviation that is equal to 25%.e. portfolio ac has an expected return that is greater than 25%.