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1. Describe how the balance sheet of the Fed is affected under each of these scenarios (point out changes to both assets and liabilities) and defend your answer: (a) The Fed sells S1 million dollars worth of government bonds to banks. (b) $1 million dollars worth of mortgage-backed securities held by the Fed expire and are paid in full by the issuers of those securities (c) S1 million dollars worth of mortgage-backed securities held by the Fed expire and only half is paid back; the rest is defaulted on.

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