Suppose That the Actual Money Multiplier Equals the Maximum Potential

question 291

Multiple Choice

Suppose that the actual money multiplier equals the maximum potential money multiplier. If the reserve ratio is 10 percent, in order for the banking system to increase deposits by $2.5 million, the Fed must

• A) permit the system to have prolonged reserve deficiencies.
• B) sell $2.5 million of government securities to the general public.
• C) sell $250,000 of government securities to the general public.
• D) buy $250,000 of government securities from the public.

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