Answer the Question on the Basis of the Following Consolidated

question 115

Multiple Choice

Answer the question on the basis of the following consolidated balance sheet of the commercial banking system.Assume that the reserve requirement is 10 percent.All figures are in billions and each question should be answered independently of changes specified in any preceding ones. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$ 60 \\140 \\260 \\400 \end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$600\\260\\\\\\\end{array}\end{array}$

Refer to the given data.Suppose the Fed wants to reduce the money supply by $400 billion to drive up interest rates and dampen inflation.Assuming that the money multiplier is operating to full effect,to accomplish the desired reduction,the Fed could:

• A) sell $20 billion of U.S.securities to the banks.
• B) buy $20 billion of U.S.securities from the banks.
• C) sell $40 billion of U.S.securities to the banks.
• D) buy $40 billion of U.S.securities from the banks.

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