Home » 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…

# 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

Can someone explain the answer or show me the math and formulas to this?

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