Suppose that the Fed purchases $1,000,000 worth of bonds and that the reserve ratio is 100 percent. Then, the maximum potential expansion of deposits is

Question

Quizplus · Accepted Answer

When the reserve ratio is 100 percent, banks must hold all deposits as reserves and cannot lend out any money. Therefore, the maximum potential expansion of deposits is equal to the amount of the Fed's bond purchase, which is $1,000,000.

Suppose That the Fed Purchases $1,000,000 Worth of Bonds and That