Assume that there are no excess reserves in the banking system when the reserve requirement 20%...
Assume that there are no excess reserves in the banking system when the reserve requirement 20% The purchase of $10.000 in U.S government securities by the Fed from Academy National Bank has the potential to ultimately increase the money supply by
a- 2,000
b-8,000
c-10,000
d-20,000
e- 50,000
Homework Answers
ANswer
Purchase of bonds supply money in the economy and take the bonds to the Fed.
Multiplier =1/reserve ratio
=1/0.2
=5
Increase in money supply =multiplier * purchase amount
=5*10000
=$50000
the money supply increases by $
option e
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