Suppose that the total checkable deposits in the entire banking system of an economy is $100 billion. The total required reserves are $10 billion. Further, banks do not hold any excess reserves, and individuals do not hold any cash in the economy.
A. In this economy, if the Federal Reserve buys $10 million worth of government securities, then how much will the money supply increase by? Explain your answer.
B. Will the change in money supply be greater or lesser than what you derived in part A if the banks hold excess reserves and individuals hold cash? Explain your answer.

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The Answer of Suppose that the total checkable deposits in the entire banking system of an economy is $100 billion. The total required reserves are $10 billion. Further, banks do not hold any excess reserves, and individuals do not hold any cash in the economy.
A. In this economy, if the Federal Reserve buys $10 million worth of government securities, then how much will the money supply increase by? Explain your answer.
B. Will the change in money supply be greater or lesser than what you derived in part A if the banks hold excess reserves and individuals hold cash? Explain your answer.

Suppose That the Total Checkable Deposits in the Entire Banking