Suppose Banks Desire to Keep 5 Percent of All Deposits

Multiple Choice

Suppose banks desire to keep 5 percent of all deposits on reserve, and the Fed sells $10 billion of government securities to Bank A. As a result,

A) the maximum amount that deposits in the economy can increase is $10 million.
B) the maximum amount that deposits in the economy can decrease is $10 million.
C) the maximum amount that deposits in the economy can decrease is $200 million.
D) the amount of deposits in the economy cannot change.
E) the maximum amount that deposits in the economy can increase is $200 million.