Answer to Question #111316 in Microeconomics for Antonio

Question

Suppose the Federal Reserve decided to purchase $30 billion worth of government securities (bonds) in the open market.
By how much would M1 change initially if the entire $30B is deposited into transition accounts?

Answer 1

purchase= $30 billion

deposit=$30 billion

M1 would change initially as;

$\delta M1=3/100\times30$ = $90 million