Fed buys $1 million of bonds from the First National Bank, but an additional 10% of any deposit is held as excess reserves on the top of 10% required reserve ratio, what is the total increase in checkable deposits? Assume there is no currency in circulation. (Hint: Use T-accounts to show what happens at each step of the multiple expansion process. Or think about the relationship between the reserve and checkable deposit intuitively.
Fed buys $1 million of bonds from the First National Bank, but an additional 10% of any deposit is held as excess reserves on the top of 10% required reserve ratio, what is the total increase in checkable deposits? Assume there is no currency in circulation. (Hint: Use T-accounts to show what happens at each step of the multiple expansion process. Or think about the relationship between the reserve and checkable deposit intuitively.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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If the Fed buys $1 million of bonds from the First National Bank, but an additional 10% of any deposit is held as
(Hint: Use T-accounts to show what happens at each step of the multiple expansion process. Or think about the relationship between the reserve and checkable deposit intuitively.)
Can you show the T-account as well please
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