Suppose the Federal Reserve Open Market Committee sells $35 billion of U.S. government securities on the open market.

After all adjustments have taken place, what is the expected change in the Ml money supply? State any assumptions used in the analysis regarding numbers.

Open market operations buy or sell bonds, which results in banks increasing or decreasing credit by the amount the FOMC desk transacts. So, initially, the sale of $35 billion of US government securities will result in a $35 billion decrease in cash held by that bank. This will reduce the amount a bank can lend. Assuming a 10% reserve requirement, a $35B / 0.1 = $350 billion would be the amount that would eventually be reduced as cash or in demand deposits (M1) from a multiplier effect. This occurs as banks reduce their lending; this in turn causes the borrowers to shrink their credit as well as their cash and demand deposits.