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Attempts Keep the Highest $/3$

$4.$ Working through an open$-$market operation

Assume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves.

What is the required reserve ratio?$5\backslash \%$

$25\backslash \%$

$40\backslash \%$

$10\backslash \%$

Suppose that the Federal Reserve $($the "Fed"$)$ buys $\backslash (\backslash$$ $4\backslash )$ million of bonds from a bond dealer, who immediately deposits the funds in her checking account. What is the initial impact of this transaction?Checkable deposits rise by $\backslash (\backslash$$ $4\backslash )$ million, and the banking system's holdings of securities rise by $\backslash (\backslash$$ $4\backslash )$ million.

The banking system's holdings of securities fall by $\backslash (\backslash$$ $4\backslash )$ million, and the banking system's total reserves rise by $\backslash (\backslash$$ $4\backslash )$ million.

The banking system's holdings of securities rise by $\backslash (\backslash$$ $4\backslash )$ million, and the banking system's total reserves fall by $\backslash (\backslash$$ $4\backslash )$ million.

Checkable deposits rise by $\backslash (\backslash$$ $4\backslash )$ million, and the banking system's total reserves rise by $\backslash (\backslash$$ $4\backslash )$ million.

As a result of the Fed's purchase of $\backslash (\backslash$$ $4\backslash )$ million of securities$,$ checkable deposits in the banking system can potentially

by as much as