The Federal Reserve Buys $10,000 of Government Securities from Commercial

Multiple Choice

The Federal Reserve buys $10,000 of government securities from commercial banks.If the required reserve ratio is 25%, what is the maximum amount of change in the nation's money supply? Assume that no banks keep excess reserves and no individuals or firms hold cash.

A) the money supply will expand by $10,000
B) the money supply will expand by $30,000
C) the money supply will expand by $40,000
D) the money supply will expand by $7,500