What is the maximum amount of money that can be created in the banking system by this purchase?
Posted on August 3rd, 2009 by admin
Banking
If all banks are meeting their reserve requirement of 20 percent and the Fed buys $35,000,000 of securities from these banks, what is the maximum amount of money that can be created in the banking system by this purchase?
Maximum increase in money =
If all banks are meeting their reserve requirement of 20 percent and the Fed buys $35,000,000 of securities from these banks, what is the maximum amount of money that can be created in the banking system by this purchase?
Maximum increase in money =
Filed under: Economics
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The maximum amount of money that can be created is (1/0.2) x $35,000,000 = $175,000,000.
Just use the required reserve ratio.
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The maximum increase in money supply = (1/.20) 35,000,000= $175,000,000