Suppose the required reserve ratio is 8% and that banks hold no excess reserves and the public does not change its currency holdings. If the Fed sells $5 million worth of securities, what happens to the amount of deposits in the banking system?

What will be an ideal response?


The simple deposit multiplier is 1/0.08 = 12.5. The amount of deposits changes by $5 million × 12.5 = -$62.5 million.

Economics

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Economics

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Economics