Consider an economy where banks do not hold any excess reserves and individuals do not hold any currency. Suppose that the Federal Reserve buys $20 billion of Treasury securities.
A. For each of these values of the reserve requirement (1 percent, 5 percent, 10 percent, and 20 percent), what is the money multiplier, and how much will the money supply increase?
B. Does the value of the change in money supply increase or decrease with an increase in reserve requirement? Explain your answer.

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The Answer of Consider an economy where banks do not hold any excess reserves and individuals do not hold any currency. Suppose that the Federal Reserve buys $20 billion of Treasury securities.
A. For each of these values of the reserve requirement (1 percent, 5 percent, 10 percent, and 20 percent), what is the money multiplier, and how much will the money supply increase?
B. Does the value of the change in money supply increase or decrease with an increase in reserve requirement? Explain your answer.

Consider an Economy Where Banks Do Not Hold Any Excess