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Suppose the reserve ratio is 10 percent, banks are all loaned up, and people hold only deposits and no currency. When the Fed sells $20 million...
7. Suppose the reserve ratio is 10 percent, banks are all loaned up, and people hold only deposits and no currency. When the Fed sells $20 million worth of bonds to the public, bank reserves
A. increase by $20 million and the money supply eventually increases by $20 million. B. increase by $20 million and the money supply eventually increases by $200 million. C. decrease by $2 million and the money supply eventually increases by $20 million. D. decrease by $20 million and the money supply eventually decreases by $200 million. E. None of the above
Answer: D
Can someone explain the answer or show me the math and formulas to this?
