The reserve requirement ratio is 10%.Which of the following pair of changes would both allow a bank to lend out an additional $10,000?
A)the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank
B)the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000
C)the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank
D)the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000

Question

Quizplus · Accepted Answer

When the Fed buys a $10,000 bond from the bank, the bank's reserves increase by $10,000, allowing it to lend out $10,000 more. Similarly, when the Fed lends the bank $10,000, the bank's reserves also increase by $10,000, enabling it to lend out an additional $10,000.

The Reserve Requirement Ratio Is 10