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Maximum increase in the money supply

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Reference no: EM132550804

Assume that Elliott deposits $1,000 in coins he collected into his checking account. The required reserve ratio for the banking system is 10% and Elliott's bank was fully loaned up prior to his deposit.

-Explain the immediate effect of his deposit on the M1 measure of the money supply.Calculate the following:

-the maximum amount the bank will loan out

-the maximum increase in the money supply as a result of this transactionNow assume that the Federal Reserve purchases $10 million in government bonds. Calculate the maximum increase in the total money supply.

-Given the increase in the money supply when the Federal Reserve purchases bonds, are people with fixed incomes better off, worse off, or unaffected? Explain.

Reference no: EM132550804

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