If the FOMC purchases government bonds priced at $5, 000 from a bond dealer who banks at National Bank, and if the reserve requirement is 20 percent, then the required reserves of National Bank:
A)increase by $5, 000.
B)increase by $4, 000.
C)increase by $1, 000.
D)decrease by $5, 000.
E)decrease by $1, 000.

Question

Quizplus · Accepted Answer

The reserve requirement is 20%, so the required reserves increase by 20% of $5,000, which is $1,000.

If the FOMC Purchases Government Bonds Priced at $5, 000