Question

question 79
2 pts
if the reserve ratio is 7 percent, banks do not hold excess reserves, and people do not hold currency, then when the fed purchases $239 worth of government bonds, the money supply increases by how much $?

Explanation:

Step1: Calculate money multiplier

The money multiplier is the reciprocal of the reserve ratio.
$\text{Money Multiplier} = \frac{1}{\text{Reserve Ratio}} = \frac{1}{0.07}$

Step2: Compute money supply increase

Multiply the bond purchase amount by the money multiplier.
$\text{Increase in Money Supply} = 239 \times \frac{1}{0.07}$

Answer:

$\approx 3414.29$