Suppose the Desired Reserve Ratio Is 10 Percent and You

Multiple Choice

Suppose the desired reserve ratio is 10 percent and you pay back a loan of $40 000.What is the impact of this on the bank's reserves and,once the banking system has completed its adjustments to the repayment,the money supply?

A) You add $40 000 in reserves, which adds $400 000 to the money supply.
B) You eliminate $40 000 in reserves, which eliminates $400 000 from the money supply.
C) You eliminate $4000 in reserves, which eliminates $40 000 from the money supply.
D) You add $4000 in reserves, which adds $40 000 to the money supply.