Suppose the reserve ratio is 25 and banks do not hold excess reserves. when the fed sells 40 million of bonds to the public who then deposits the proceed into the banking system.

If the Fed sells $40 million worth of bonds, it is carrying out a contractionary monetary policy that tries to decrease the money supply.

This transaction should decrease the banks' reserves by $40 million, and the money supply should decrease by a maximum of $160 million (= $40 million x 1/25%) due to the money multiplier.

Money multiplier = 1/25% = 4

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation: