Consider an open market purchase by the Fed of $9 billion of Treasury bonds. What is the impact of the purchase on the bank from which the Fed bought the securities? Compute the impact on M1 assuming that: (1) the required reserve ratio is 5 percent; (2) the bank does not wish to hold excess reserves; and (3) the public does not wish to hold currency.
The bank’s securities (Click to select) fallrise by $9 billion and its reserves (Click to select) fallrise by $9 billion. Assuming that the required reserve ratio is 5 percent, banks do not want to hold excess reserves, and the public does not wish to hold currency, the simple deposit multiplier will be _______ , so the value of deposits (and M1) will rise by $ ________ billion.