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alekssr [168]
3 years ago
8

The Fed buys $10 million of securities from AIG. AIG has a desired reserve ratio of 0.05, and there is no currency drain.

Business
1 answer:
Andreyy893 years ago
3 0

Answer:

$200,000,000

Explanation:

Given that:

Amount of securities purchased = $10 million

Desired reserve ratio = 0.05

The bank's excess reserve :

Money multiplier * amount of securities purchased

Money multiplier = 1 / reserve ratio

Money multiplier = 1 / 0.05 = 20

Excess reserve = 20 * $10,000,000

Excess reserve = $200,000,000

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