Multiple Choice
The banking system currently has $200 billion of reserves,none of which are excess.People hold only deposits and no currency,and the reserve requirement is 4 percent.If the Fed raises the reserve requirement to 10 percent and at the same time buys $50 billion worth of bonds,then by how much does the money supply change?
A) It rises by $600 billion.
B) It rises by $125 billion.
C) It falls by $2,500 billion.
D) None of the above is correct.
Correct Answer:
Verified
Correct Answer:
Verified
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