00:01
Here we're taking a look at the money supply process, specifically the effect that the fed has on the money supply when they purchase $100 million of bonds from the public.
00:10
And they also choose to reduce the reserve ratio.
00:13
So given this information, we want to know what does this do to the money supply? does it increase? does it decrease? does it remain the same? well, to think this through, we have to figure out where this $100 million goes once it leaves the hands of the fed.
00:25
So they purchased the bonds from the public, which means this $100 million, it goes to the hands of the public.
00:30
Individuals, firms, corporations, whomever they purchase those bonds from.
00:34
The public, now that they have this funds, they're going to deposit this into the bank, right? so this is going to take the form of deposits.
00:45
The bank is now holding this as deposits, and they're going to have to take a certain percentage of that, right, that reserve ratio...