If a Bank Uses $80 of Excess Reserves to Make

question 174

Multiple Choice

If a bank uses $80 of excess reserves to make a new loan when the reserve ratio is 25 percent, what happens to the money supply?

• A)The money supply initially decreases by $80.
• B)The money supply initially increases by $20.
• C)The money supply will eventually increase by more than $20 but less than $80.
• D)The money supply will eventually increase by $320.

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