Multiple Choice
Answer the question on the assumption that the legal reserve ratio is 20 percent.Suppose that the Fed sells $500 of government securities to commercial banks (paid for out of commercial bank reserves) and buys $500 of securities from individuals, who deposit the cash in checking accounts.As a result of the given transactions, reserves in the banking system will
A) remain unchanged.
B) rise by $100.
C) fall by $100.
D) rise by $1,000.
Correct Answer:
Verified
Correct Answer:
Verified
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