The Fed purchases $200 worth of government bonds from the public.The reserve requirement is 12.5 percent,people hold no currency,and the banking system keeps no excess reserves.The U.S.money supply eventually increases by
A)$25.
B)between $200 and $300.
C)$1,600.
D)$2,500.

Question

Quizplus · Accepted Answer

The money multiplier is 1 divided by the reserve requirement ratio, which is 1/0.125 = 8. The initial purchase of $200 in bonds increases the money supply by $200 * 8 = $1,600.

The Fed Purchases $200 Worth of Government Bonds from the Public.The