What is the impact of the purchase on the bank

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Question - Consider an open market purchase by the Fed of $6 billion of Treasury bonds. What is the impact of the purchase on the bank from which the Fed bought the securities?

The bank's securities fall by $6 billion and its reserves rise by $6 billion.

Compute the impact on M1 assuming that: (1) the required reserve ratio is 5 percent; (2) the bank does not wish to hold excess reserves; and (3) the public does not wish to hold currency.

Reference no: EM133030555

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