In a Fractional Reserve Banking System with No Excess Reserves

Multiple Choice

In a fractional reserve banking system with no excess reserves and no currency holdings, suppose the central bank buys $100 million of bonds. Which statement best describes the effects of this open-market operation?

A) Reserves and the money supply increase by less than $100 million.
B) Reserves increase by $100 million, and the money supply increases by $100 million.
C) Reserves increase by $100 million, and the money supply increases by more than $100 million.
D) Both reserves and the money supply increase by more than $100 million.