If the Reserve Ratio Is 10%, and Banks Do Not

Multiple Choice

If the reserve ratio is 10%, and banks do not hold excess reserves, when the Fed purchases $10 million of government bonds, bank reserves

A) increase by $10 million and the money supply could eventually increase by $10 million.
B) decrease by $10 million and the money supply could eventually decrease by $100 million.
C) increase by $10 million and the money supply could eventually increase by $100 million.
D) decrease by $10 million and the money supply could eventually decrease by $10 million