Question

g Assume that the reserve requirement is 11.69 percent. Banks do not hold excess reserves and there is no cash held by the public. The Federal Reserve decides that it wants to expand the money supply by $59 million using open-market operations. The Federal Reserve needs to buy $______ million worth of bonds. Round to two decimal places.

Answer 1

$6.90 million

Step-by-step explanation:

The computation is shown below:

Given that

The Reserve requirement is 11.69%

And, the money supply is $59 million

Based on the above information

First the money multiplier should be find out i.e.

= 1 ÷ 0.1169

= 8.55

Now the amount that need to buy is

= $59 ÷ 8.55

= $6.90 million

Hence, the federal reserve required to purchase $6.90 million worth of bonds