Answer to Question #172090 in Macroeconomics for Sehej

Question

(b) Assume that the required reserve ratio is 25 percent, The desired currency to deposit ratio and the desired excess reserve ratio are both zero. If there is an open market purchase of Rs. 250000/-. What will happen to the following? (i) Total deposits of the banking system (ii) (iii) Loans Total reserve

Answer 1

i) 250,000/-

ii)$\frac{25}{100}×250,000=62,500/-$