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Suppose no excess reserves were in the banking system and the required reserve ratio(r) was 10%. The Fedbought a government bond worth $250,000 from Paolo,
Suppose no excess reserves were in the banking system and the required reserve ratio(r) was 10%. The Fedbought a government bond worth $250,000 from Paolo, a client of First Main Street Bank. Paolo deposited the money into his checking account at First Main Street Bank. Given the required reserve ratio (r), First Main Street Bank was required to hold as required reserves and could use to make loans
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