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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Explain how an open market purchase increases the money supply.

To determine

The change in money supply.

Explanation

When there is an open market purchase of a security, it results in the injection of money in the economy. When the Fed purchases securities from a commercial bank, it leads to an increase in the securities held by the Fed and the reserves of the commercial banks will decrease. On the other hand, after the transaction, the balance of the commercial banks increases. The reserves held with the Fed are also a part of the banking system...

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