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The FOMC has instructed the FRBNY Trading Desk to purchase $ 3 4 0 million in US . Treasury securities . The Federal Reserve has

The FOMC has instructed the FRBNY Trading Desk to purchase $340 million in US. Treasury securities. The Federal Reserve has
currently set the reserve requirement at 5 percent of transaction deposits. Assume U.S. banks withdraw all excess reserves and give
out loans.
a. Assume also that borrowers eventually return all of these funds to their banks in the form of transaction deposits. What is the full
effect of this purchase on bank deposits and the money supply?
b. What is the full effect of this purchase on bank deposits and the money supply if borrowers return only 95 percent of these funds to
their banks in the form of transaction deposits?
(For all requirements, enter your answers in billions. Round your final answers to 2 decimal places. (i.e.,5,500,000,000 should be
entered as 5.50).)
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