Please Help me out with this economics question?

Question

1) In what sense does the Fed "create money"?

2) Suppose that the minimum required reserve ratio for banks was 1/11. Also suppose that banks held no excess reserves and that currency in circulation was unchanged. What action in the Treasury bill market would the Fed have to take to increase bank checking account deposits by $990 million?

3) Assuming that banks used all their excess reserves to support an increase in the volume of bank lending, by how much would bank lending expand if the Fed undertook the policy action that was your answer to question (2) ?

Answer 1

1)

It means that FED increases money supply by using monetary tools.

2)

Money multiplier is reverse of 1/11 so it is =11, to create additional money supply of $990 million FED should purchase bonds on open market and quantity purchased should be 990/11= $90 million.

3)

Money supply increased by 990 million but bank should hold 1/11 of this amount in reserves (90 million) - so induced lending are: 990-90=$900 millions.