Money Multiplier With Leakages
A central bank injects $500 million into the banking system through open market operations. The required reserve ratio is 10%, but due to economic uncertainty, banks hold excess reserves equal to 5% of deposits and the public increases currency holdings by 10%. Approximately how much will the money supply expand?
A
More than $5 billion
B
Exactly $2.5 billion
C
Exactly $5 billion
D
Less than $2.5 billion
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