63 790
Assignments Done
99,3%
Successfully Done
In August 2018

Answer to Question #38089 in Macroeconomics for Helen K.

Question #38089
Assume that the banking system is loaned up and that any open-market purchase by the Fed directly increases reserves in the banks. If the required reserve ratio is 0.2, by how much could the money supply expand if the Fed purchased $2 billion worth of bonds?
Expert's answer
RRR (Required Reserve Ratio) = 0.2
Thus, DM (Deposite Multiple) = 1/RRR = 5
and expansion will be $2 billion*DM = $10 billion

Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!

Comments

Assignment Expert
03.08.16, 18:28

Dear David,

thank you! Answer is corrected.

David
03.08.16, 17:14

Unfortunately, I believe the provided answer is incorrect. In order to determine the potential expansion in the money supply, you would take the amount injected into the system by the Fed via its bond purchase and multiply it by the deposit multiplier $2 billion * (1/0.2) which equals $10 billion.

Leave a comment

Ask Your question

Submit
Privacy policy Terms and Conditions