Suppose the required reserve ratio is 0.2 and the Fed buys $100,000 in government securities from...
Suppose the required reserve ratio is 0.2 and the Fed buys $100,000 in government securities from Big Bank. How much money can the commercial banking system create?
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$1,000,000 |
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$500,000 |
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$100,000 |
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$80,000 |
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none |
Homework Answers
Money supply increases by deposits/rrr= 100000/0.2= 500000
When fed 100000 securities new money created is equal to 500000
$500000 is correct
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