If the Federal Reserve buys $1,000 in bonds and the reserve requirement ratio is 0.5,what happens to the money supply and the net worth of all banks?

Question

Quizplus · Accepted Answer

When the Federal Reserve buys bonds, the reserves for the banks that sold the bonds increase. Since the reserve requirement ratio is 0.5, the banks can now lend out an additional $1,000 ($2,000 increase in the money supply) without violating the reserve requirement. Therefore, the money supply increases by $2,000, but there is no change in net worth since the bonds purchased by the Federal Reserve are assets for the banks that sold them.

If the Federal Reserve Buys $1,000 in Bonds and the Reserve