question archive The following table shows the balance sheet of Tucker National Bank
The following table shows the balance sheet of Tucker National Bank
Subject:EconomicsPrice:2.88 Bought3
The following table shows the balance sheet of Tucker National Bank.
| Assets | Liabilities | ||
|---|---|---|---|
| Required reserves | $4,000 | Checkable deposits | $20,000 |
| Excess reserves | $16,000 | ||
| Loans | $0 | ||
| Total | $20,000 | Total | $20,000 |
Assume all banks in the system started with the balance sheet in the table and the Fed makes a $1,000 open market purchase. The result would be a(n)
A. $1,000 expansion of the money supply.
B. $5,000 expansion of the money supply.
C. infinite expansion of the money supply.
D. infinite contraction of the money supply.
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A. $1,000 expansion of the money supply
It is because the open market purchase of worth $1000 bonds would facilitate the injection of money worth $1000 in an economy. Hence, it would facilitate the increment in the money supply by $1000.
