Suppose the reserve requirement is 10 percent and banks routinely hold 1 percent in excess reserves. If the Fed purchases $440 million in government bonds in an open market operation, then the money supply
A) increases by $4 billion regardless of the effect on the demand for currency.
B) increases by $5 billion regardless of the effect on the demand for currency.
C) increases by some amount above or below $4 billion, depending on whether the demand for currency rose or fell with the stimulus of the open market operation.
D) increases by some amount less than $4 billion because the full money multiplier is diminished by any GDP-induced increase in the demand for currency.
E) none of the above.

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The Answer of Suppose the reserve requirement is 10 percent and banks routinely hold 1 percent in excess reserves. If the Fed purchases $440 million in government bonds in an open market operation, then the money supply
A) increases by $4 billion regardless of the effect on the demand for currency.
B) increases by $5 billion regardless of the effect on the demand for currency.
C) increases by some amount above or below $4 billion, depending on whether the demand for currency rose or fell with the stimulus of the open market operation.
D) increases by some amount less than $4 billion because the full money multiplier is diminished by any GDP-induced increase in the demand for currency.
E) none of the above.

Suppose the Reserve Requirement Is 10 Percent and Banks Routinely