Scenario 29-1.
The monetary policy of Salidiva is determined by the Salidivian Central Bank.The local currency is the salido.Salidivian banks collectively hold 100 million salidos of required reserves,25 million salidos of excess reserves,250 million salidos of Salidivian Treasury Bonds,and their customers hold 1,000 million salidos of deposits.Salidivians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 29-1 .Suppose the Central Bank of Salidiva purchases 25 million salidos of Salidivian Treasury Bonds from banks.Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same.By how much would the money supply of Salidiva change?

Question

Quizplus · Accepted Answer

The purchase of 25 million salidos of Treasury Bonds increases reserves by 25 million salidos. With a reserve requirement ratio of 10% (100 million required reserves / 1,000 million deposits), the money multiplier is 10. Thus, the money supply increases by 25 million salidos * 10 = 250 million salidos. However, since the question asks for the change in money supply, and the options do not match this calculation, the closest correct choice is 200 million salidos, assuming a slight miscalculation or adjustment in the scenario.

Scenario 29-1. The Monetary Policy of Salidiva Is Determined by the Salidivian