Question

If the Open Market Purchase is $1 billion by approximately how much will the supply of Money increase

Answer 1

Answer: $10 billion

Step-by-step explanation:

Increase in the money supply can be calculated by multiplying the injection of cash into the economy by the Money Multiplier which is calculated as;

= 1/ reserve ratio

Reserve ratio = 10%

Money Multiplier = 1 / 10%

= 10

The money supply will therefore increase by;

= 1,000,000,000 * 10

= $10,000,000,000

= $10 billion