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The reserve ratio is 20% for the banking system below. If the Federal Reserve sells $50,000 of Treasury bills to the banking system, then the money supply will decrease by $_____.

Respuesta :

jepessoa

Answer:

$250,000

Explanation:

The effect of a change in the money supply is given by the following equation: money increase/decrease x money multiplier

the money multiplier = 1/reserve ratio = 1/20% = 5

so the net effect of this transaction = -$50,000 x 5 = -$250,000

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