If the Reserve Ratio Is 8 Percent, Banks Do Not

Multiple Choice

If the reserve ratio is 8 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million of government bonds, bank reserves

A) increase by $20 million and the money supply eventually increases by $250 million.
B) decrease by $20 million and the money supply eventually increases by $250 million.
C) increase by $20 million and the money supply eventually decreases by $250 million.
D) decrease by $20 million and the money supply eventually decreases by $250 million.