Question

The federal reserve conducts a 10 million open market purchase of government bonds. If the required reserve ratio if 10 percent, what is the largest possible increase in the money supply that could results?

Answer 1

The largest increase in the money supply from a 10 million dollars open market purchase is 100 million dollars.

Explanation:

The money multiplier could increase by 10 if the required reserve ratio is 10%.

The larges increase in the money supply from a 10 million dollars open market purchase is 100 million dollars.

On the other hand, the smallest possible increase is 10 million. This is the case when the bank holds all of the money as reserves.