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

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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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