Government securities from the non-bank public

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Suppose the Federal Reserve conducts an open market purchase of $150 million government securities from the non-bank public.

(a) Given the required reserve ratio, RR/D = 0.10, the excess reserves to deposits ratio, ER/D = 0.06, the currency to deposits ratio, C/D = 0.04, the nontransaction deposits to deposits ratio, N/D = 0.03, and the money market mutual funds to deposits ratio, MMF/D = 0.03, what will be the change in money supply?

(b) If the commercial banks keep more excess reserves in the banking system, how does it affect the money multiplier?

Reference no: EM132412241

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