If the Federal Reserve sells $20 million worth of government securities and the M1 multiplier is 2.5. Bank reserves will

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Quizplus · Accepted Answer

When the Federal Reserve sells government securities, it decreases the amount of reserves that banks hold by the amount of the sale. In this case, selling $20 million worth of securities directly reduces bank reserves by $20 million. The multiplier effect relates to how changes in reserves can affect the money supply, not the immediate change in reserves themselves.

If the Federal Reserve Sells $20 Million Worth of Government