Using A Required Reserve Ratio Of 10 And Assuming That Banks Keep No Excess Rese

Using a required reserve ratio of 10% and assuming that banks keep no excess reserves, which of the following scenarios produces a larger increase in the money supply, explain why.

a) Someone takes $1000 from under his or her mattress and deposits it into a checking account.

b) The Fed purchases $1,000 in government securities from a commercial bank.

Leave a Reply

Your email address will not be published. Required fields are marked *