The Banking System Currently Has $100 Billion of Reserves,none of Which

question 59

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 5 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 $200 billion.
• B)It rises by $800 billion.
• C)It rises by $1,200 billion.
• D)None of the above is correct.

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