Assume That the Required Reserve Ratio Is 20 Percent

question 76

Multiple Choice

Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from the general public, then the money supply will immediately:

• A) Increase by $0 with this transaction, and the maximum money-lending potential of the commercial banking system will increase by $400 million
• B) Increase by $0 with this transaction, but the maximum money-lending potential of the commercial banking system will increase by $320 million
• C) Increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $400 million
• D) Increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $320 million

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