Suppose the required reserve ratio is 5 percent and the Fed buys a $10,000 bond.If money is deposited into a commercial bank,what will initially happen to money supply?

Question

Quizplus · Accepted Answer

When the Fed buys a bond, it pays for it with newly created reserves. Since the required reserve ratio is 5 percent, the bank can lend out 95 percent of the $10,000 in new reserves, which will increase the money supply by $10,000.

Suppose the Required Reserve Ratio Is 5 Percent and the Fed