1. Assume that any money lent by a bank is always deposited back in the banking system...

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1. Assume that any money lent by a bank is always deposited back in the banking system as a checkable deposit and that the reserve ratio is 10%. Trace out the effects of a $100 million open-market purchase of U.S. Treasury bills by the Fed on the value of checkable bank deposits. What is the size of the money multiplier?

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