Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $4 billion worth of government securities. If the securities are purchased from the non-bank public, this action has the potential to increase money supply by a maximum of:

$16 billion, and also by $16 billion if the securities are purchased directly from commercial banks

Explanation:

Since we are given a 25% reserve ratio, then the money multiplier will therefore be:

= 1/25%

= 1/0.25

= 4.

Therefore, the money supply will be increased to (4 billion × 4) = 16 billion.

Therefore, the answer is "$16 billion, and also by $16 billion if the securities are purchased directly from commercial banks".

apex verified answer < 3

: : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : d. choose to : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : :

i really hope this < 3 < 3 < 3