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-(Scenario: Assets and Liabilities of the Banking System) Look at the scenario Assets and Liabilities of the Banking System. Suppose that the reserve ratio is 10% and the Fed buys $25,000 worth of U.S. Treasury bills from the banking system. If the banking system does NOT want to hold any excess reserves, _____ will be added to the money supply.

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Use the following to answer questions : 
-(Scenario: Assets and Liabilities of the Banking System) Look at the scenario Assets and Liabilities of the Banking System. Suppose that the reserve ratio is 10% and the Fed buys $25,000 worth of U.S. Treasury bills from the banking system. If the banking system does NOT want to hold any excess reserves, _____ will be added to the money supply.

Quizplus · Accepted Answer

The money multiplier is 1/reserve ratio = 1/0.10 = 10. The Fed's purchase of $25,000 will increase the money supply by $25,000 * 10 = $250,000.

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