Use your mouse to click on the 'Buys' or 'Sells' checkboxes as desired.
You may change the value of Initial Change in Reserves, Required Reserve-Deposit Ratio, Excess Reserve-Deposit Ratio, or the Currency-Deposit Ratio by clicking on one the boldfaced numbers in the appropriate number box.
Press the Money Creation Process button.
Press Reset to start over.
Questions:
Starting with a required reserve-deposit ratio of 10 percent, an excess reserve-deposit ratio of zero and a currency-deposit ratio of zero, use the table to calculate the overall impact on the money supply when the Federal Reserve carries out an open market purchase of $10,000.
What happens to the overall increase in the money supply if the reserve-deposit ratio falls to 5 percent?
Repeat the exercise in question one but with the excess reserve-deposit ratio set to 2.5 percent. Explain why the overall impact on the money supply is lower.
Keeping everything else the same, increase the currency-deposit ratio to 75 percent. Calculate the overall impact of the open market purchase and explain why it is lower.
Repeat the exercise in question three for an open market sale of $10,000 by the Federal Reserve. What happens to the money supply?
