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Consider an open market purchase by the Fed of $7 billion of Treasury bonds. What is the impact of the purchase on the bank from
Consider an open market purchase by the Fed of $7 billion of Treasury bonds. What is the impact of the purchase on the bank from which the Fed bought the securities? Compute the impact on M1 assuming that:(1) the required reserve ratio is 5 percent(2) the bank does not wish to hald excess reserves; and (3) the public does not wish to hold currency The bank's securities tal o hold currency, the simple deposit multiplier will beso the value of deposits (and M1) will ise by $billiorn. by S7 bilion and its reserves rise by $7 bllion. Assuming that the required reserve ratio is 5 peroent, banks do not want to hold excess reserves, and the public daes not wish
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