If the Fed buys $10 million of government securities when the desired reserve ratio is 20 percent and the currency drain is 5 percent, the quantity of money

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When the Fed buys government securities, it increases the reserves in the banking system. With a reserve ratio of 20%, the money multiplier is 1/0.2 = 5. Considering the currency drain of 5%, the effective money multiplier is slightly less than 5, leading to an increase in the money supply by approximately $42 million.

If the Fed Buys $10 Million of Government Securities When