Homework Answers
Answer
Money multiplier =(1+CD)/(RR+ED+CD)
CD=currency deposits ratio =20%
RR=required reserve ratio =10%
ED=excess to deposits ratio=10%
Money multiplier =(1+0.2)/(0.2+0.1+0.1)
=3
the Fed buy bonds means the reserves increases by the amount.
increase in money supply =increase in reserve * money multiplier =50*3=$150 million
the money supply increases by $150 million
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