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If the Reserve Ratio Is 20 Percent,and Banks Do Not

Question 197

Multiple Choice

If the reserve ratio is 20 percent,and banks do not hold excess reserves,and people hold only deposits and not currency,then when the Fed sells $40 million of bonds to the public,bank reserves


A) increase by $40 million and the money supply eventually increases by $200 million.
B) increase by $40 million and the money supply eventually increases by $800 million.
C) decrease by $40 million and the money supply eventually decreases by $200 million.
D) decrease by $40 million and the money supply eventually decreases by $800 million.

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