Suppose a Sunken Ship Containing $1000 in Currency Is Dredged

Multiple Choice

Suppose a sunken ship containing $1000 in currency is dredged out of Lake Erie. The currency is still legal tender,but interest rates are high so no one wants to hold onto the currency; the owners therefore deposit it in a bank. If the reserve requirement is 20% and the banks hold no excess reserves,the eventual result will be

A) the money supply decreases by $200
B) the money supply increases by $1000
C) the money supply increases by $2000
D) the money supply increases by $5000
E) the money supply remains unchanged