Question

Place the events in order to describe how money the fed adds to the economy starts to be multiplied. The reserve requirement in this example is 10%.

Answer 1

1. The Fed buys a security from a bank for $1,000.

2. The bank sets $100 aside as required reserves

3. The bank lends $900 to a customer needing a loan.

4. The customer spends the $900 at a store.

5. The store owner deposits the $900 in another bank.