1. Harry Potter has $5000 in cash that he deposits in his checking account at Gringotts Bank.
a. Has the amount of reserves in the banking system changed? If so, by how much and in what direction? Explain your answer.
b. At this point (with no other transactions) has the money supply changed? If so by how much and in what direction? Explain your answer.
c. The bankâ€™s desired reserve ratio is 0.2 and, before Harryâ€™s deposit, Gringottsâ€™ reserves were at the desired level. Hermione Granger has applied to Gringotts for a loan. How much does Gringotts want to lend to Hermione? Explain your answer.
d. After Gringotts makes the loan to Hermione you described in part c, how much has the money supply increased due to Harryâ€™s deposit? Explain.
e. What is the maximum amount of bank deposits that can be supported by the reserves Harry provided to the banking system, given Gringottsâ€™ desired reserve ratio? Show your work and explain your answer.

2. As of October 2018, the exchange rate between dollars and euros is $1.14 per euro, compared with $1.30 per euro in September 2014.
a. A liter of Italian olive oil costs â‚¬20.
i. What is the price in dollars of a liter of Italian olive oil at todayâ€™s exchange rate? Show your work.
ii. What was the price in dollars of a liter of Italian olive oil at the exchange rate that prevailed four years ago? (Assume that the euro price of the olive oil is unchanged.) Show your work.
b. When the value of the euro changed from $1.14 to $1.08:
i. Did the Euro depreciate or appreciate against the dollar? Explain.
ii. Did the dollar depreciate or appreciate against the Euro? Explain.

1. Harry Potter has $5000 in cash that he deposits in his checking...