Answer on Macroeconomics Question for Helen K.
Thus, DM (Deposite Multiple) = 1/RRR = 5
and expansion will be $2 billion*DM = $10 billion
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thank you! Answer is corrected.
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.