If the Reserve Ratio Is 5 Percent, Banks Do Not

question 197

Multiple Choice

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed sells $30 million worth of government bonds, bank reserves

• A)decrease by $30 million and the money supply eventually decreases by $600 million.
• B)increase by $30 million and the money supply eventually increases by $600 million.
• C)decrease by $30 million and the money supply eventually decreases by $150 million.
• D)increase by $30 million and the money supply eventually increases by $150 million.

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