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Homework answers / question archive / In the financial market context, suppose an economy in which the public holds cash worth $ 1,000 and demand deposits worth $ 2,000 and the reserve ratio is 10%
In the financial market context, suppose an economy in which the public holds cash worth $ 1,000 and demand deposits worth $ 2,000 and the reserve ratio is 10%. Starting from equilibrium, if the central bank buys bonds worth $ 200 (round to 2 decimal places)
A) The money supply decreases by $ 200
B) The money supply increases by $ 200
C) The monetary base decreases by $ 500
D) The money supply increases by $ 500
At the point when a national bank purchases bonds, money is spilling out of the national bank to commerical banks in the economy, expanding the money supply available for use. At the point when a national bank sells bonds, at that point money from singular banks in the economy is streaming into the national bank—decreasing the amount of money in the economy.
Correct answer is option B) The money supply increases by $ 200
