Assume the Fed Purchases $5,000 Worth of U

Multiple Choice

Assume the Fed purchases $5,000 worth of U.S.Treasury bonds from Bill Gates, who promptly deposits the money in Microsoft Rules National Bank.Assuming that the required reserve ratio is 25 percent and banks keep zero excess reserves, then the money supply will:

A) increase by $5,000.
B) increase by $20,000.
C) decrease by $5,000.
D) decrease by $20,000.