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

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Definitions:

Budget Variance

The difference between what was budgeted for a period and what was actually spent or received.

Volume Variance

The difference between the expected (budgeted) volume of production or sales and the actual volume, impacting costs and revenues.

Cooling Coil

A device within an air handling unit or HVAC system used to lower air temperature and remove moisture by passing air over a cold surface.

Fixed Overhead Budget Variance

The difference between the actual fixed overhead costs incurred and the expected (budgeted) costs.