If the Federal Reserve Bank purchases $10 million worth of Treasury securities in the open market when the req

Question

Guys i need so much help with this work. Please anyone who knows about economics

If the Federal Reserve Bank purchases $10 million worth of Treasury securities in the open market when the required reserve ratio is 5 percent, what is the potential change in the money supply? If the required reserve ratio is 25 percent?

Answer 1

In the first case, it is 200 million. To calculate this, you take the amount of reserves (since that is where the money would go to), and multiply it by the money multiplier, which is 100/5, or 20.
$10 million X 20= $200 million

Do the same thing in the second case to get $40 million.

Answer 2

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