Asked by jill
Am i right, just checking as too many wrong homework assignments at the start of this semester have messed up my grades
If the required reserve ratio is 0.2, by how much could the money supply expand if the central bank purchased £2 billion worth of bonds?
2.0 billion x 0.20 = 400 million to be held in reserve, which means that the money supply increases by, 1.6 billion.
If the required reserve ratio is 0.2, by how much could the money supply expand if the central bank purchased £2 billion worth of bonds?
2.0 billion x 0.20 = 400 million to be held in reserve, which means that the money supply increases by, 1.6 billion.
Answers
Answered by
MAJ
The money multiplier is 1/required reserve ratio. So .2=1/5. The money multiplier is 1/(1/5)=5.
So money will expand by 2B X 5 = 10 Billion
So money will expand by 2B X 5 = 10 Billion
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