Suppose the Federal Reserve System has a required reserve ratio of 0.10 and there are no excess reserves in the system.If the Open Market Committee buys $50 million of securities from the commercial banking system,the total lending capacity for the system

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The purchase of $50 million in securities by the Open Market Committee injects $50 million in reserves into the banking system. With a required reserve ratio of 0.10, this allows for an increase in lending capacity of $500 million (10 times the amount of reserves injected). Therefore, the total lending capacity of the system increases by $500 million.

Suppose the Federal Reserve System Has a Required Reserve Ratio