Respuesta :
The greatest potential change in the money supply is $1000 if the required reserve ratio is 10% and the Fed purchases $100 in the open market.
The reserve ratio is what?
The reserve ratio is the percentage of reservable liabilities that commercial banks are required to hold onto and refrain from lending to or investing in. The requirement is set by the nation's central bank, in this case the Federal Reserve in the United States. The cash reserve ratio is another name for it.
How is the money supply defined?
The total amount of money in circulation, including notes, coins, and bank account balances, is known as the money supply. According to a standard definition, the money supply is a collection of secure assets that individuals, corporations, and governments can use to make purchases or hold as short-term investments.
Money Multiplier = 1 / Reserve Ratio.
Money Multiplier= 1 / 10%= 10
Open market purchase= $100
Money Multiplier= 10
Money supply= $100 X 10= $1000
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