Suppose the Fed Sells $100 Million of U

question 63

Multiple Choice

Suppose the Fed sells $100 million of U.S. securities to the security dealers. If the reserve requirement is 20 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) $100 million decrease.
• B) $500 million increase.
• C) $500 million decrease.
• D) $100 million increase.

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Definitions:

Low-resistance

A characteristic of a material or component that allows a large amount of electrical current to pass through with minimal opposition.

Spike

A sudden, sharp increase or peak in the magnitude of a variable, often used in the context of electrical voltage or signals.

Low Values

Refers to measurements or quantities that are significantly below average or expected levels.

Voltmeter

An instrument used for measuring electrical potential difference between two points in an electric circuit.