If the Reserve Ratio Is 10%, and Banks Do Not

question 223

Multiple Choice

If the reserve ratio is 10%, and banks do not hold excess reserves, when the Fed purchases $10 million of government bonds, bank reserves

• A) increase by $10 million and the money supply could eventually increase by $10 million.
• B) decrease by $10 million and the money supply could eventually decrease by $100 million.
• C) increase by $10 million and the money supply could eventually increase by $100 million.
• D) decrease by $10 million and the money supply could eventually decrease by $10 million

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