Assume the Reserve Requirement Is 25% and the Federal Open

question 46

Multiple Choice

Assume the reserve requirement is 25% and the Federal Open Market Committee buys $4 million of U.S. government bonds from the public. As a result of this transaction, the supply of money is

• A) not directly affected but has the potential to be increased by a total of $12 million.
• B) directly increased by $4 million and has the potential to be increased by another $12 million.
• C) directly reduced by $4 million and has the potential to be reduced by another $12 million.
• D) directly increased by $4 million and has the potential to be increased by another $8 million.

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Definitions:

Retirement Funds

Financial assets set aside to support individuals financially when they cease working, typically in the form of pensions or savings plans.

Compounded Monthly

Interest computation method where interest gains are calculated on a monthly basis, with each month's interest added to the principal for future calculations.

Prize

A reward given for victory or superiority in a contest or competition.

Payments

The transfer of money or goods from one person or entity to another, often in exchange for services or products.