The Banking System Currently Has $200 Billion of Reserves,none of Which

question 103

Multiple Choice

The banking system currently has $200 billion of reserves,none of which are excess.People hold only deposits and no currency,and the reserve requirement is 4 percent.If the Fed raises the reserve requirement to 10 percent and at the same time buys $50 billion worth of bonds,then by how much does the money supply change?

• A)It rises by $600 billion.
• B)It rises by $125 billion.
• C)It falls by $2,500 billion.
• D)None of the above is correct.