The Banking System Currently Has $200 Billion of Reserves,none of Which

question 279

Multiple Choice

The banking system currently has $200 billion of reserves,none of which are excess.People hold only deposits and no currency,and the reserve requirement is 4 percent.If the Fed raises the reserve requirement to 10 percent and at the same time buys $50 billion of bonds,then by how much does the money supply change?

• A) It rises by $600 billion.
• B) It rises by $125 billion.
• C) It falls by $2,500 billion.
• D) None of the above is correct.

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