Suppose the Fed Buys $5,000 of U

question 141

Multiple Choice

Suppose the Fed buys $5,000 of U.S.Treasury bonds from Donald Trump.If the reserve requirement is 25 percent,the currency holdings of the public are unchanged,and banks have zero excess reserves both before and after the transaction,the total impact on the money supply will be a

• A)increase by $5,000.
• B)increase by $20,000.
• C)decrease by $5,000.
• D)decrease by $20,000.

---

Definitions:

Time Deposit

A deposit in a financial institution that requires notice of withdrawal or must be left for some fixed period of time.

Junk Bonds

High-risk, high-yield bonds issued by companies with lower credit ratings, reflecting a greater risk of default but offering higher returns to compensate investors.

Real Estate Prices

The amount of money required to purchase ownership or rental rights to land and buildings.

Bank Interest Rates

The percentage charged on loans or paid on savings by banks to customers.