The Fed conducts an open market purchase of securities of $5,000.If the currency drain ratio is 0 percent and the desired reserve ratio is 10 percent,then the total increase in the quantity of money is
A)$5,000.
B)$20,000.
C)$50,000.
D)$10,000.
E)$4,000.

Question

Quizplus · Accepted Answer

The money multiplier is 1/desired reserve ratio, which is 1/0.10 = 10. The total increase in the quantity of money is the initial purchase amount multiplied by the money multiplier: $5,000 * 10 = $50,000.

The Fed Conducts an Open Market Purchase of Securities of $5,000.If