If the Required Reserve Ratio Is 20 Percent and the Fed

question 172

Multiple Choice

If the required reserve ratio is 20 percent and the Fed buys a $10,000 security from a depository institution that currently has no excess reserves,what happens to the money supply,using the simple multiplier?

• A)Nothing.
• B)It increases by $5,000.
• C)It decreases by $5,000.
• D)It increases by $50,000.
• E)It decreases by $50,000.

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Definitions:

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