Pearson eText Economics of Money, Banking and Financial Markets, The, Business School Edition -- Instant Access (Pearson+)
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Chapter 17, Problem 3Q
To determine

The fate of checkable deposits if the Fed buys $1 million of bonds from the First National Bank and the First National Bank and all other banks use the resulting increase in reserves to purchase securities only and not to make loans.

Concept introduction:

Through the process of multiple deposit creation, the total value of deposits created will be

  Total value of deposits =$1million*(1 rr)=$1million*(1 0.1)=$10million

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