Question 4 If the Fed buys $1 million of bonds from the First National Bank, the required reserve ratio is 10% and an a...

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Question 4 If the Fed buys $1 million of bonds from the First National Bank, the required reserve ratio is 10% and an additio

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Answer 1

Answer #1

Required reserve ratio = 10%

Deposit held as excess reserves = 10%

So the total deposits which will be held as reserve is 20%

Which means that 1/0.2 = 5.

So multiple deposit addition will make $1 million reserve into $5 million of deposit.

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Answer 2

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