Multiple Choice
Suppose a bank uses $200 of its $500 excess reserves to make a new loan when the reserve ratio is 20 percent. How does this action by itself initially change the money supply?
A) The money supply increases by $40.
B) The money supply decreases by $40.
C) The money supply increases by $200.
D) The money supply decreases by $200.
Correct Answer:
Verified
Correct Answer:
Verified
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