Suppose the required reserve ratio is 10 percent, and banks hold no excess reserves. If the Fed purchases $10 million worth of government bonds from Bank C, the amount of loans held by Bank C will

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When the Fed purchases $10 million worth of government bonds from Bank C, Bank C's reserves increase by $10 million. With a 10% reserve requirement, Bank C can lend out the remaining 90% of the $10 million, which is $9 million. However, the question asks about the immediate change in loans held by Bank C, which will initially increase by the full $10 million as the bank's reserves increase by that amount.

Suppose the Required Reserve Ratio Is 10 Percent, and Banks