Suppose the Reserve Ratio Is 4 Percent,banks Do Not Hold

Multiple Choice

Suppose the reserve ratio is 4 percent,banks do not hold excess reserves,people do not hold currency,and the Bank of Canada purchases $25 million of government bonds.Which statement best describes the effects of Bank of Canada's purchase?

A) Bank reserves increase by $25 million,and the money supply eventually increases by $500 million.
B) Bank reserves decrease by $25 million,and the money supply eventually increases by $500 million.
C) Bank reserves increase by $25 million,and the money supply eventually decreases by $500 million.
D) Bank reserves decrease by $25 million,and the money supply eventually decreases by $500 million.