Question

If the federal reserve sells $50000 in treasury bonds to a bank at 8% interest, what is the immediate effect on thhe money supply?

Answer 1

We assume, that the number 500000 is 100% - because it's the output value of the task. so we can write it down as 50000=%100. %8=x (immediate effect on money supply). Now we have 2 simple equations to solve.

50000=100 & x=8
50000/100=x/8
cross multiply
100x=4,000,000
x=4,000,000 ÷100
x=40,000
40,000 is the immediate effect on the money supply