Question

100 Points - AP Macro Questions - Brainliest to Correct Answers. Wrong Answers Get Reported

Assume the Federal Reserve Bank (Central Bank) buys $5 Million in government bonds on the open market. As a result of this purchase, calculate the maximum increase in the money supply for the banking system.

Answer 1

Answer:

Explanation:

20% Reserve Requirement means 1/0.2 = 5x multipliers

$5 Million x 5  = $25 Million

Answer 2

Answer:

Explanation:

The question is missing a few assumptions there: if the Fed's reserve requirement is 20% and the banks are not holding extra reserves, then the Multiplier can be calculated as:

1/20%

= 1/20 *100

= 5

Sp a $5 Million buy will increase the money supply by $25 Million as the maximum.

If the reserve requirement is different or banks hold extra reserves, then the answer will be different.