Suppose the Federal Reserves trading desk buys $500,000 in T-bills...?

Question

Suppose the Federal Reserves trading desk buys $500,000 in T-bills from a securities dealer, who then deposits the Fed’s check in the Best National Bank. Use a balance sheet to show the impact on the bank’s loans. Consider the money multiplier and assume the required reserve ratio is 10 percent. What is the maximum increase in the money supply that can result from this open market transaction?

Answer 1

Best National Bank receives $500,000 in cash. They can only loan 90% of it.

So $450k can hit the money supply.

Answer 2

Puts $5MM into the economy.