Assume the required reserve ratio is 10 percent and the FOMC orders an open mark
ID: 1214347 • Letter: A
Question
Assume the required reserve ratio is 10 percent and the FOMC orders an open market sale of $50 million in government securities to banks. Using the oversimplified money multiplier, the money supply could potentially: Assume the required reserve ratio is 10 percent and the FOMC orders an open market sale of $50 million in government securities to banks. Using the oversimplified money multiplier, the money supply could potentially: Assume the required reserve ratio is 10 percent and the FOMC orders an open market sale of $50 million in government securities to banks. Using the oversimplified money multiplier, the money supply could potentially:Explanation / Answer
Required reserve ratio= 10% i.e. .10
Open market sale or monetary base= $50 million
Firstly we will calculate money multiplier-
Money multiplier= 1/required reserve ratio
Money multiplier= 1/.10 = 10
Now based on that, we will calculate money supply-
Money Supply= Monetary base * money multiplier
Money Supply= $50 million * 10 = $500 million.
$500 million is the answer.