Assume That There Is a 25 Percent Reserve Ratio and That

Multiple Choice

Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $200 million worth of government securities. If the securities are purchased from the public, then this action has the potential to increase bank lending by a maximum of

A) $600 million, and also by $600 million if the securities are purchased directly from commercial banks.
B) $800 million, and also by $800 million if the securities are purchased directly from commercial banks.
C) $600 million, but by $800 million if the securities are purchased directly from commercial banks.
D) $800 million, but only by $600 million if the securities are purchased directly from commercial banks.