If the Reserve Ratio Is 5 Percent,banks Do Not Hold

question 71

Multiple Choice

If the reserve ratio is 5 percent,banks do not hold excess reserves,and people do not hold currency,then when the Fed purchases $20 million worth of government bonds,bank reserves

• A)increase by $20 million and the money supply eventually increases by $400 million.
• B)decrease by $20 million and the money supply eventually decreases by $400 million.
• C)increase by $20 million and the money supply eventually increases by $100 million.
• D)decrease by $20 million and the money supply eventually decreases by $100 million.

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