Assume that the non-bank public holds no physical currency (and banks hold no excess reserves). After...

Assume that the non-bank public holds no physical currency (and banks hold no excess reserves). After the banking system has fully adjusted to the initial deposit what will be the total impact of the open market purchase on the money supply? Explain your answer (including any relevant calculations

Expert Solution

In open market purchase the Fed buys and sells government securities in the open market. The Fed buys government bonds if it wants to increase the money supply.The dealers of securities sell the bonds with cash which increases the overall money supply in te economy.In order to regulate the supply of money that is on reserve in the US banks , the Fed buys and sells securities.The banks can then loan out to consumers and business firms.

Rahul Sunny answered 2 years ago

Assume that no banks hold excess reserves and the public holds no currency (which implies that...

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Assume that the non-bank public holds no physical currency (and banks hold no excess reserves). After...

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