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The Fed conducts an open market sale of bonds. $50 million and the reserve ratio is 20% and after the sale. a. Does the money
9. Suppose a country has a 100% reserve requirement for all banks. a. How much does the money supply change from a deposit of
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Answer #1

8)a) Open market sales means Fed will sell the securities and will soak the liquidity from the market. Thus money supply will decrease.

B) Reserve ratio=20%=0.2

money multiplier=1/r=1/0.2=5

Money supply will increase by 5*50=250 million

9)A) Money supply will increase only by $100 because there will be no multiplier effect.

b)when reserve requirement is 100% then banks will have no role in moving funds from depositors to borrower

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