Assume the Desired Reserve Ratio Is 25 Percent and the Bank

Multiple Choice

Assume the desired reserve ratio is 25 percent and the Bank of Canada buys $4 million of securities from the public.As a result of this transaction the supply of money is:

A) not directly affected, but the money-creating potential of the chartered banking system is increased by $12 million.
B) directly increased by $4 million and the money-creating potential of the chartered banking system is increased by $16 million.
C) directly reduced by $4 million and the money-creating potential of the chartered banking system is decreased by $12 million.
D) directly increased by $4 million and the money-creating potential of the chartered banking system is increased by $12 million.