question archive The Federal Reserve purchases $12 million in U
The Federal Reserve purchases $12 million in U
Subject:EconomicsPrice:2.88 Bought3
The Federal Reserve purchases $12 million in U.S. Treasury bonds from a bond dealer, and the dealer's bank credits the dealer's account. The required reserve ratio is 15% and the bank typically lends any excess reserves immediately. Assuming that no currency leakage occurs, calculate how much will the bank be able to lend to its customers following the Fed's purchase.
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To calculate the money that the bank can lend to its customers:
Excess money = Total proceeds * Reserve ratio
Excess money = $12 million - ($12 million * 15%)
Excess money = $10.2 million
Assuming that there is no currency leakage, the bank may lend $10.2 million to its customers.
