The Fed Conducts an Open Market Purchase of $10 Million

question 207

Multiple Choice

The Fed conducts an open market purchase of $10 million in government securities. If the reserve ratio is 20%, what is the maximum change in the money supply? Assume banks hold no excess reserves and there is no currency withdrawal from the banking system.

• A) maximum increase in money supply = $10 million
• B) maximum decrease in money supply = $10 million
• C) maximum increase in money supply = $50 million
• D) maximum decrease in money supply = $50 million

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Definitions:

Anima

In Jungian psychology, the unconscious feminine side of a man, or the archetype representing the female aspect of a man's personality.

Masculine Side

The collection of attributes, behaviors, and roles generally associated with boys and men, as determined by societal norms.

Defense Mechanism

Psychological strategies unconsciously used to protect oneself from anxiety by denying and distorting reality.

Reaction Formation

Psychological defense mechanism in which a person forms an opposite emotional or behavioral reaction to the way he or she really feels to keep those true feelings hidden from self and others.