Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 29 - Part X - The Monetary System - Problems and Applications - Page 631: 7

Answer

The money supply will increase more if the 2,000 dollars is from the Fed purchasing bonds. (If the money from the cookie jar is added to the bank, the money was already in the economy as currency.) The bond purchase will create 40,000 dollars in new money supply, and the cookie jar deposit will create 38,000 dollars in new money supply--a difference of 2,000 dollars.

Work Step by Step

$2000/.5 = 40000$ $40000-2000=38000$
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