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

---

Definitions:

Upward Communication

The process through which employees communicate information, feedback, or concerns upward in the organizational hierarchy to their superiors.

Dropped In Importance

Situations or items that have become less significant or prioritized over time.

Grapevine

An informal, unofficial, and personal communication network found in an organization or social community.

Useful Information

Data that is relevant, accurate, and timely, aiding in decision making by providing significant insight or knowledge.