Question

The Fed buys $100 million of bonds from the public and also lowers the required reserve ratio. What will happen to the money supply?

Short answer

The $100 million purchase of bonds will increase the monetary base.

Step-by-step solution

Concept Introduction

The $100 million acquisition of securities will build the financial base.

Explanation 

The $100 million acquisition of securities will build the financial base.

Explanation 

prompting an expansion in the cash supply. Bringing down the hold prerequisite makes the cash multiplier rise, prompting an expansion in the cash supply.

Final Answer

The $100 million acquisition of securities will build the financial base, prompting an expansion in the cash supply. Bringing down the hold prerequisite makes the cash multiplier rise, prompting an expansion in the cash supply.