When the Fed buys a $100,000 bond from a bond dealer
A. reserves of the banking system increase by $100,000, but the money supply can increase by more than $100,000.
B. reserves of the banking system remain unchanged, but the money supply increases by $100,000.
C. reserves of the banking system increase by $100,000, but the money supply will only be able to increase by something less than this amount.
D. reserves of the banking system remain unchanged, but the money supply decreases by $100,000.
Answer: A
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