If the Federal Reserve buys $500 of government securities when the required reserve ratio is 50 percent, the maximum potential change in the money supply is a(n)

Question

Quizplus · Accepted Answer

When the Federal Reserve buys $500 of government securities, the banks' reserves increase by $500. Since the required reserve ratio is 50%, the banks can lend out $500 (50% of $1,000), resulting in a potential increase in the money supply by $1,000. Therefore, the correct answer is B.

If the Federal Reserve Buys $500 of Government Securities When