Assume the Fed's Required Reserve Ratio Is 12

True/False

Assume the Fed's required reserve ratio is 12%. Further assume that the Fed buys $10 million of U.S. Treasury securities from a dealer who deposits the check, which is drawn on the Fed, in his bank. His bank's reserve account with the Fed has increased by $10 million and so have its (demand) deposits, its total reserves, and the overall level of M₁. However, required reserves have risen only by $1.2 million. This leaves an additional $8.8 million that the bank is free and eager to invest in order to improve its income.