Initially, the reserve ratio is 10 percent. Now banks decide they want an additional 10 percent of deposits as reserves. There are no currency drains. If the Fed buys $1 million of U.S. government securities, the money supply will

A. increase by $10 million.
B. increase by $5 million.
C. not change because of the excess reserves banks keep on hand.
D. increase by $1 million.


Answer: B

Economics

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