If the reserve requirement is 20 percent and the Fed buys $10,000 worth of Treasury bonds,what is the change in the banks' total reserves?
A)$2,000
B)$10,000
C)$20,000
D)$8,000
E)$100,000

Question

Quizplus · Accepted Answer

If the reserve requirement is 20%, it means that banks are required to hold 20% of their deposits as reserves. When the Fed buys $10,000 worth of Treasury bonds, the seller of the bonds will receive the payment in the form of a check. When the check is deposited into the seller's bank account, the bank will keep 20% of the deposit as required reserves and the remaining 80% will be added to the bank's excess reserves. Therefore, the change in the banks' total reserves will be equal to the amount of the bond purchase, which is $10,000.

If the Reserve Requirement Is 20 Percent and the Fed