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Assume the reserve ratio is 10% Formula: Potential Expansion Deposits = 1/Reserve Ratio x Excess Reserves...

Assume the reserve ratio is 10%

Formula: Potential Expansion Deposits = 1/Reserve Ratio x Excess Reserves

County National Bank

A

L

Reserves     20,000

100,000     Deposits

ER = ______________________              Potential Expansion _____________________

  1. FED (Federal Reserve Bank) buys a $10,000 bond from the bank. What is the potential impact on MS (Money Supply)?
  1. FED buys a $10,000 bond from a bank customer. What is the impact on MS? Is there a difference between 2 and 3? Why?
  2. Assume the money supply rule. Growth in Q is 5%; growth in V is 2%. How much should the MS grow to keep P constant? Assume MV = PQ

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Expert Solution

Rahul Sunny answered 1 year ago
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