Assume That the Required Reserve Ratio Is 25 Percent

Multiple Choice

Assume that the required reserve ratio is 25 percent. If the Federal Reserve sells $120 million in government securities to the general public, the money supply will immediately

A) decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $480 million.
B) decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $360 million.
C) increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $480 million.
D) increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $360 million.