Question

The Federal Reserve buys $14.00 million in Treasury securities. If the required reserve ratio is 5.00%, and all currency is deposited into the banking system, and banks hold excess reserves of 10%, then the maximum amount the money supply can increase is $ ______ million. (Insert your answer in millions; if you think the answer is $30 million, just enter 30. Round your answer to two decimal places.)

Answer 1

Answer:

$93.33

Explanation:

The computation of the increase the maximum account in supply is shown below:

As we know that

Money multiplier = 1 ÷ (excess reserve ratio + required reserve ratio)

= 1 ÷ (0.05 + 0.10)

= 6.67

Now increase in money supply is

= $14 million ×6.67

= $93.33

Answer 2

The maximum amount the money supply can increase is $93.33

First step is to find the multiplier

Reserve= (Excess reserve ratio + Required reserve ratio)

Reserve = (0.05 + 0.10)

Reserve=0.15

Second step

Increase in money supply = $14 million/0.15

Increase in money supply= $93.33

Inconclusion the maximum amount the money supply can increase is $93.33

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