The Banking System Currently Has $100 Billion of Reserves,none of Which

question 297

Multiple Choice

The banking system currently has $100 billion of reserves,none of which are excess.People hold only deposits and no currency,and the reserve requirement is 10 percent.If the Fed lowers the reserve requirement to 8 percent and at the same time buys $10 billion of bonds,then by how much does the money supply change?

• A) It rises by $225 billion.
• B) It rises by $375 billion.
• C) It rises by $675 billion.
• D) None of the above is correct.