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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 $100,000 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 $100,000 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

When the Fed buys $100,000 worth of Treasury bills, it increases reserves by $100,000. With a reserve ratio of 10%, the money multiplier is 1/0.10 = 10. Therefore, the total increase in the money supply is $100,000 * 10 = $1 million.

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