If the Fed wants to increase the lending capacity of the system by $60 billion and the reserve requirement is 10 percent,it should

Question

Quizplus · Accepted Answer

The money multiplier is 1 divided by the reserve requirement (1/0.10 = 10). To increase the lending capacity by $60 billion, the Fed should buy $6 billion in bonds, as this will increase reserves by $6 billion, which can be multiplied by 10 to increase the lending capacity by $60 billion.

If the Fed Wants to Increase the Lending Capacity of the System