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Consider a world in which there is no currency and depository institutions issue only transactions deposits and desire to hold no excess reserves. The required reserve ratio is
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Consider a world in which there is no currency and depository institutions issue only transactions deposits and desire to hold no excess reserves. The required reserve ratio is

User Wjans
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15 votes
15 votes

Consider a world in which there is no currency and depository institutions issue only transactions deposits and desire to hold no excess reserves. The required reserve ratio is 15 percent. The central bank sells ​$0.98 billion in government securities.

What happens to the money supply?

Give reasons to support your answer.

Answer:

The answer is below

Step-by-step explanation:

Considering the situation described above, the result is that there will be a DECREASE in the money supply of $6.53 billion.

This is because the money multiplier is calculated as 1/rr, where RR is the reserve ratio.

Hence, in this case, we have 1/0.15 = 6.67

Therefore, 6.67 × $0.98 billion = $6.53 billion.

User Pabigot
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