Answer:
Quantity of money changes by $50,000,000
Explanation:
Desired reserve ratio = 10% = 0.1
Currency drain ratio = 1% = 0.01
Money multiplier = (1+0.1) / (0.1+0.01) = 1.1/ 0.11 = 10
Value of securities purchased = $5 million
Change in quantity of money :
$5 million * 10 = $50 million
Currency created : currency drain ratio * change in quantity of money
0.01 * $50,000,000 = $500,000
Amount of bank deposit = quantity change - currency created
= $50,000,000 - $500,000 = $4,500,000
