Refer to Exhibit 13-1.Suppose that the Federal Reserve conducts open market operations by purchasing $1,000 worth of government securities from Bank A.At the end of this process of money creation,what equation would be used to determine the total amount of new checkable deposits?
A) simple deposit multiplier x change in reserves resulting from the initial injection of funds
B) 1/r x change in reserves resulting from the initial injection of funds
C) r x change in reserves resulting from the initial injection of funds
D) 1/r
E) a or b

Question

Quizplus · Accepted Answer

The correct equations to determine the total amount of new checkable deposits created in the banking system as a result of the Federal Reserve's open market operations are both A) simple deposit multiplier x change in reserves resulting from the initial injection of funds and B) 1/r x change in reserves resulting from the initial injection of funds. Both expressions represent the formula for calculating the maximum potential increase in checkable deposits due to a change in reserves, where "r" is the reserve ratio.