Suppose the Federal Reserve conducts an open market purchase for $100 million. Assuming the required reserves ratio
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Suppose the Federal Reserve conducts an open market purchase for $100 million.
Assuming the required reserves ratio is 10%, what would be the effect on the money supply in each of the following situations?
a) There is only one bank and the bank decides not to make a loan with its excess reserves.
b) There is only one bank, and the bank decides to make a loan for the full amount of its excess reserves.
c) There are many banks, all of which make loans for the full amount of their excess reserves.
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