Scenario: Assets and Liabilities of the Banking System Assets Loans Reserves Lia

Question

Scenario: Assets and Liabilities of the Banking System Assets Loans Reserves Liabilities $900,000 100,000 $1,000,000 1. (Scenario: Assets and Liabilities of the Banking System) According to the scenario that the reserve ratio is 10% Assets and Liabilities of the Banking System, suppose when the Fed buys $25,000 worth of U.S. Treasury bills from the banking system. If the banking system does not want to hold any excess reserves, money supply A) $666,667 B) $111,111 C) $250,000 D) $1 million will be added to the

Explanation / Answer

Answer
The increase in money supply=worht of US treasury bills/reserve ratio
=25000/0.1=250000
the increase in money supply is $250000
option C

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