Table 16-7 Metropolis National Bank Is Currently Holding 2% of Its Deposits

Multiple Choice

Table 16-7
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.
-Refer to Balance Sheet of Metropolis National Bank. Metropolis National Bank is holding 2% of its deposits as excess reserves. Assume that no banks in the economy want to maintain holdings of excess reserves and that people only hold deposits and no currency. The Fed makes open market purchases of $10,000. The person who sold bonds to the Fed deposits all the funds in Metropolis National Bank. If the bank now loans out all its excess reserves, by how much will the money supply increase?

A) $190,000
B) $200,000
C) $240,000
D) None of the above are correct.