The Fed purchases $1 million of U.S.government securities from First Bank.The desired reserve ratio is 10 percent,the currency drain ratio is zero,and banks loan all excess reserves.The money multiplier is equal to

Question

Quizplus · Accepted Answer

The money multiplier is calculated as 1/required reserve ratio. In this case, the required reserve ratio is 10%, so the money multiplier is 1/0.1 = 10. Therefore, the initial injection of $1 million will result in a total increase of $10 million in the money supply.

The Fed Purchases $1 Million of U