If the Reserve Ratio Is 8 Percent, Banks Do Not

question 67

Multiple Choice

If the reserve ratio is 8 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million of government bonds, bank reserves

• A)increase by $20 million and the money supply eventually increases by $250 million.
• B)decrease by $20 million and the money supply eventually increases by $250 million.
• C)increase by $20 million and the money supply eventually decreases by $250 million.
• D)decrease by $20 million and the money supply eventually decreases by $250 million.

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