Suppose that the Fed undertakes an open market purchase of $1 million worth of securities from a bank.If the required reserve ratio is 9%,what is the resulting change in checkable deposits (or the money supply),assuming that there are no cash leakages and that banks hold zero excess reserves?

Question

Quizplus · Accepted Answer

The money multiplier is 1/required reserve ratio = 1/0.09 = 11.11. The change in checkable deposits is the money multiplier times the initial change in reserves, which is $1 million * 11.11 = $11.11 million.

Suppose That the Fed Undertakes an Open Market Purchase of $1