Money Multiplier With Leakages
Suppose the central bank conducts an open-market purchase of securities, increasing bank reserves by $500 million. If the required reserve ratio is 10%, banks choose to hold excess reserves equal to 5% of total deposits, and the public holds currency in an amount equal to 10% of deposits, what is the approximate resulting change in the money supply?
A
Less than $2.5 billion
B
Exactly $5 billion
C
More than $5 billion
D
Exactly $2.5 billion
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