Answer:
The fed needs to purchase bonds worth $20 from the banks to increase money supply by $200.
Explanation:
The Federal Reserve wants to increase the money supply by $200.
The reserve requirement is 10%.
The fed can increase the money supply by purchasing bonds from commercial banks.
The money supply will increase by money multiplier times worth of bonds.
Increase in money supply = [tex]\frac{1}{RR}\ \times\ Worth\ of\ bonds\ purchased[/tex]
$200 = [tex]\frac{1}{0.1}\ \times\ Worth\ of\ bonds[/tex]
Worth of bonds = [tex]\frac{200}{10}[/tex]
Worth of bonds = $20
So the fed needs to purchase bonds worth $20 from the banks to increase money supply by $200.
