Assume That the Required Reserve Ratio Is 25 Percent

question 83

Multiple Choice

Assume that the required reserve ratio is 25 percent. If the Federal Reserve sells $120 million in government securities to the general public, the money supply will immediately

• A) decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $480 million.
• B) decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $360 million.
• C) increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $480 million.
• D) increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $360 million.

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Definitions:

Life Span

The longest period that members of a species can live.

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The average period that an individual is expected to live, based on statistical analysis.

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Describes something that has grown or risen in number, size, quantity, or degree.

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