The Fed buys $20,000 of government securities. The desired reserve ratio is 5 percent and the currency drain is zero. What will

Question

3 years ago

12

be the change in the quantity of money?

1 answer:

JulsSmile [24] · Answer 1 · 2022-02-22T12:08:35+03:00

Answer:

The answer is $400,000

Explanation:

Quantity theory of money states that the quantity of money is directly proportional total spending in an economy.

Change in quantity of money = new deposits (which can also be new security) ÷ reserve requirements

The new security is $20,000

reserve requirements is 5 percent

Change in quantity of money is:

$20,000 / 0.05

=$400,000

The Fed buys​ $20,000 of government securities. The desired reserve ratio is 5 percent and the currency drain is zero. What will