Suppose the Banking System Has No Excess Reserves and Required

Multiple Choice

Suppose the banking system has no excess reserves and required reserves equal to 20 percent of checkable deposits.If the Fed sells $10,000 in securities to Joe Bankustomer,what is the most that checkable deposits in the banking system fall? (Hint: Compare what the banking system might have done if it had loaned at every opportunity; also include the initial transaction with the Fed.)

A) $2,000
B) $10,000
C) $20,000
D) $50,000
E) $500,000