According to Simple Deposit Multiplier if the Federal Reserve conducts an open market
purchase in the amount of $400 and the required reserve ration is 20% what is the change
In deposits?
Thank you!
To find out the change in deposits due to an open market purchase, we need to use the concept of the Simple Deposit Multiplier.
The Simple Deposit Multiplier measures the potential impact of a change in reserves on the money supply. It is calculated by taking the reciprocal of the required reserve ratio. In this case, the required reserve ratio is 20%, which means the Simple Deposit Multiplier would be 1/0.20 or 5.
To calculate the change in deposits, we need to multiply the amount of the open market purchase by the Simple Deposit Multiplier. In this case, the open market purchase amount is $400.
Change in Deposits = Open Market Purchase Amount x Simple Deposit Multiplier
Change in Deposits = $400 x 5
Change in Deposits = $2000
Therefore, the change in deposits due to the open market purchase would be $2000.