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AP Macroeconomics/Unit 4: Financial Sector
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Money Multiplier With Leakages
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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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