Assume that individuals hold cash and the banks hold excess reserves. If the reserve requirement is 1 percent and the Federal Reserve buys $10 of Treasury securities from a bank, then money supply will _____ than $1,000.

Question

Quizplus · Accepted Answer

The money supply will increase by less than $1,000 because individuals hold cash and banks hold excess reserves, which reduces the money multiplier effect.

Assume That Individuals Hold Cash and the Banks Hold Excess