Question

The central bank buys $1,000 of government securities only from commercial banks. The maximum change in excess reserves, banking system loans, and the total money supply will be__________.

Answer 1

Answer:

Explanation:

Excess reserves would rise by $1000 and money supply would also rise by the same amount. however the effect on banking system loans would be according to the interest rate prevailing in the market at that time and furthermore, since banking system can create credit money based on excess reserves its effect on banking system will be measure taking into account all these factors