9. Suppose the Federal Reserve engages in open market purchases of $10,000. If reserve requirements are...
9. Suppose the Federal Reserve engages in open market purchases of $10,000. If reserve requirements are 9%, then using the simple money multiplier, what will happen to total banking deposits?
a. They will increase by $111,111.11
b. They will decrease by $111,111.11
c. They will increase by $101,111.11
d. They will increase by $90,000
Homework Answers
When Fed purchase goods in open market it increases deposits of banks.
Total banking deposits increases = 1/reserve requirement x Open market purchase
= 1/0.09 x 10,000 = 11.111111 x 10,000 = $ 111111.11
Answer is a) They will increase by $ 111,111.11
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9. Suppose the Federal Reserve engages in open market purchases
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