During open market operations the Federal Reserve Bank purchases $120 million dollars worth of securities. The...
During open market operations the Federal Reserve Bank purchases $120 million dollars worth of securities. The estimate, using the simply multiplier model is that this will raise checkable deposits in the economy by $750 million. In this, the required reserve ratio is
Group of answer choices
A) 12%
B) 16%
C) 18%
D) 20%
Homework Answers
Answer : The answer is option B.
Changes in money supply = Changes in deposits * Money multiplier
=> 120 = 750 * Money multiplier
=> Money multiplier = 120 / 750 = 0.16 * 100 = 16%
Therefore, option B is correct.
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During open market operations the Federal Reserve Bank purchases
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