Question

if the fed purchases $10,000 worth of securities and the required reserve ratio is 8%, by how much will deposits change (assuming no change in excess reserves or the nonbank public's currency holdings)? rise by $125,000 decline by $10,000 rise by $10,000 rise by $80,000

Answer 1

When the Fed purchases $10,000 worth of securities with an 8% required reserve ratio, deposits will rise by $125,000. Therefore, the correct option is A.

Step-by-step explanation:

When the Fed purchases $10,000 worth of securities and the required reserve ratio is 8%, deposits will increase by a certain amount.

To calculate this, we can use the money multiplier formula, which is 1 divided by the reserve ratio.

Money multiplier = 1/Reserve ratio

= 1/0.08

= 12.5

So, if the Fed purchases $10,000 worth of securities, the change in deposits would be

$10,000 x Money multiplier

= $10,000 x 12.5

= $125,000.

Therefore, deposits will rise by $125,000 in this scenario.