Assume That the Reserve Requirement Ratio Is 12 Percent and That

Multiple Choice

Assume that the reserve requirement ratio is 12 percent and that the Fed uses open market operations to buy $200 million worth of Treasury securities. Assuming that banks use all funds exceptrequired reserves to make loans and that the public does not store any cash, the money supply should ____ by about ____.

A) increase; $200 million
B) increase; $1.67 billion
C) decrease; $200 million
D) decrease; $1.67 billion