If the Fed Sells $10 Million in Bonds to a Bank

Multiple Choice

If the Fed sells $10 million in bonds to a bank, and the required reserve ratio is 20 percent, then the banking system can:

A) decrease the money supply by up to $10 million.
B) decrease the money supply by up to $40 million.
C) decrease the money supply by up to $50 million.
D) increase the money supply by up to $2 million.