The Banking System Currently Has $100 Billion of Reserves, None

question 36

Multiple Choice

The banking system currently has $100 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed lowers the reserve requirement to 8 percent and at the same time buys $10 billion worth of bonds, then by how much does the money supply change?

• A)It rises by $225 billion.
• B)It rises by $375 billion.
• C)It rises by $675 billion.
• D)None of the above is correct.

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