Respuesta :
This instance indicates that if the reserve requirement is 10 percent, the Fed could enlarge the cash grant by way of $1,000 by using purchasing a $100 Treasury consignment (T-bill) in the open market.
However, if the reserve requirement have been 5 percent, a $100 T-bill purchase would lead to a $2,000 enlarge in the money supply.
What does a reserve ratio of 10% mean?
If the required reserve ratio is 10 percent this capacity that banks have to hold 10 percent of their deposits as required reserves. If deposits are $20 million, then $2 million ($20 million x . 10) should be held as required reserves. Excess reserves are reserves over and above required reserves.
If the reserve requirement is 10%, then the cash grant reserve multiplier is 10 and the money grant be 10 instances reserves.
Learn more about reserve ratio here:
