Question

g The Fed makes an open market operation purchase of​ $200,000. The currency drain ratio is 33.33 percent and the desired reserve ratio is 10 percent. By how much does the quantity of money​ increase?

Answer 1

Answer: $618,000

Step-by-step explanation:

From the question, we are informed that the Fed makes an open market operation purchase of​ $200,000 and that the currency drain ratio is 33.33 percent and the desired reserve ratio is 10 percent.

We first have to calculate the money multiplier which will be:

= (1 + the currency drain ratio)/( the currency drain ratio + the reserve ratio)

= (1 + 33.33%)/(33.33% + 10%)

= ( 1 + 0.33)/(0.33 + 0.1)

= 1.33/0.43

= 3.09

The quantity of money​ increase will be:

= 3.09 × $200,000

= $618,000