Question

Sharon sells a government security worth $4,600,000 to the Federal Reserve Bank of Kansas City. She then deposits the funds in her checking account at First Commerce Bank. Her checking account had a $150,000 balance before this deposit. The reserves of First Commerce Bank would

Answer 1

Answer:

the reserves of First Commerce Bank will increase by $4,600,000. Then when the bank starts to make loans with Sharon's money, the money supply will increase by $4,600,000 times the money multiplier. Since we are not given the bank reserve ratio it is not possible to determine the money multiplier in order to calculate the precise money creation impact of Sharon's deposit.